US claims success on Iran sanctions policy: Update

Adds details on sanctions, EU response

Washington says its economic pressure tactics have already constrained Tehran, with the first batch of sanctions curbing Iran's foreign exchange earnings to go into effect at 12:01am ET tomorrow.

The US Treasury Department will start enforcing a prohibition on acquisitions of US dollar notes by Iran's central bank, trade in gold and semi-finished metals, and transactions with Iran's sovereign debt. The sanctions were lifted in January 2016 under the Joint Comprehensive Plan of Action (JCPOA), in exchange for restrictions on Iran's nuclear program. But President Donald Trump in May withdrew the US from that agreement.

The mere threat of sanctions has caused the devaluation of the Iranian rial and sparked economic protests even though "we were warned by experts that the threat of US unilateral sanctions would not be an effective tool," a senior administration official said today. "In the next 90 days the increased economic pressure, culminating in petroleum sector sanctions, will have an exponential effect on Iran's fragile economy."

The more intrusive sanctions, on Iran's oil sector, will come into force at midnight ET on 5 November. The sanctions will target exports of crude and petroleum products from Iran. As before, the sanctions will exclude natural gas exports from Iran, as well as flows from the Shah Deniz gas field in Azerbaijan.

The Treasury said today its package of new sanctions, unveiled in an executive order signed by Trump today, will not only snap back the punitive measures in effect between July 2012 and January 2016 but add new prohibitions designed to prevent establishing workaround payment mechanisms for the purchase of Iranian oil, including through barter arrangements. It also institutes US visa restrictions on corporate officers for financial and other foreign institutions dealing with Iran, state-owned NIOC and other energy sector companies.

As in 2012-16, the Treasury will enforce these sanctions against foreign buyers of Iranian oil and products unless the State Department exempts that country from US sanctions.

The sanctions written into US law require that the administration either compels foreign buyers of Iranian oil to reduce their purchases to zero by 4 November, or extracts a guarantee to significantly reduce them in exchange for an exemption from sanctions.

US officials today reiterated the previous guidance that the ultimate goal is to drive Iranian exports to zero, but waivers for some buyers would be available. "We are not looking to grant exemptions, but we will be glad to discuss requests on a case-by-case basis."

So far reactions from other countries have been mixed.

South Korean buyers have halted purchases and are pushing Seoul to ask for a waiver from US sanctions. Japanese oil importers likewise are asking their government to secure a waiver.

But China, which is the largest buyer of Iranian crude, has not backed off Iranian purchases. In fact, China's largest refiner, state-controlled Sinopec, is planning to import less US crude, as relations with Washington deteriorate over an escalating trade war.

The US has increasingly tense relations with another major buyer of Iranian crude, Turkey. The EU, meanwhile, has urged Washington not to impose sanctions on Iran and will activate its blocking statute tomorrow, in a move to counter US sanctions against Iran. The regulation forbids EU companies from complying with the extraterritorial effects of US sanctions unless the firms have been granted an exemption and, in theory, allows companies to recover damages from such sanctions from the US.

Another senior administration official today dismissed the EU actions as ineffective. "This is not something we are concerned about," the official said. "What you need to look at is the messages that companies and financial institutions are sending by leaving Iran."

Iranian crude shipments to Europe in July held steady around the reduced levels seen in June.

US diplomats have visited more than 20 countries to press for a reduction in imports from Iran, and that work will continue through the year-end, the official said. Washington insists it retains the leverage to compel its course of action. "We made it very clear we will aggressively enforce the (president's) order. We will work with countries around the world to do so."

Tehran, in turn, says its diplomatic effort to preserve what is left of the JCPOA is paying off. Iranian foreign minister Mohammad Javad Zarif yesterday cited a "clear global consensus on need to take concerted action to preserve JCPOA" following his meetings with the remaining signatories to the agreement in Singapore.

JCPOA signatories — China, Russia, France, Germany, the UK and the EU collectively — in a joint statement today vowed to "work on the preservation and maintenance of effective financial channels with Iran, and the continuation of Iran's export of oil and gas." They said they will intensify those efforts in coming weeks, including "with third countries interested in supporting the JCPOA and maintaining economic relations with Iran."