US claims success on Iran sanctions policy

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 on 4 November — but the administration has not released the details of their roll-out. The sanctions written into US law require that the administration either compels foreign buyers of Iranian oil to reduce their purchases to zero or extracts a guarantee to significantly reduce them in exchange for an exemption from sanctions.

So far reactions from other countries have been mixed.

South Korean buyers have already 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, and Washington last month took the unusual step of slapping sanctions on top government officials of its NATO ally to protest the detention of an American pastor in that country.

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.

A senior administration official today dismissed the EU actions as ineffective. "This is not something we are concerned with," the official said. "What you need to look at is the messages that companies and financial institutions are sending by leaving Iran." The US administration said more than a 100 international companies have announced plans to stop doing business in Iran.

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."

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. We are intent to use this sanctions authority."

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.

Equally unclear is how the administration will ensure that "the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient to permit purchasers of petroleum" to switch to alternative suppliers — a legal prerequisite for enforcing its sanctions.

The US Energy Information Administration (EIA), which has to provide a report on the effect of Iran sanctions every 60 days, said in June that increasing crude production from Saudi Arabia and other Mideast Gulf producers will offset the effects of US sanctions on Iran and declining output in Venezuela. Trump personally urged Riyadh to crank up output by at least 2mn b/d.

But an expected production increase by Saudi Arabia failed to materialise. Instead, Saudi Arabia's output declined by 200,000 b/d to 10.29mn b/d. The next EIA report on Iran sanctions is due out tomorrow.