US eases off on Iran oil ultimatum

Washington appears to be in damage control mode, after its tougher stance on sanctions sparked a surge in oil prices

The US administration has backed away from its earlier insistence that countries eliminate all crude purchases from Iran by 4 November.

Officials had pledged to target countries that fail to reduce their oil purchases from Iran to zero within four months. But the State Department says the US will consider granting some waivers to the sanctions on Iranian crude sales.

"Our focus is on getting as many countries importing Iranian crude down to zero as quickly as possible," State Department policy planning director Brian Hook says. "We are not looking to grant licences and waivers broadly, but we are prepared to work with countries that are reducing their imports on a case-by-case basis."

Confusing messages last week from the US administration on the intensity of Iran sanctions unsettled global oil markets. A background briefing by the State Department on 26 June ruling out the possibility of sanction waivers sparked a surge in oil futures prices — which Washington wanted to avoid.

The follow-up briefing seems an attempt at damage control. "Our goal with respect to the energy sanctions is to increase pressure on the Iranian regime by reducing to zero its revenue from crude oil sales," Hook says. "We are working to minimise disruptions to the global oil markets and we are confident there is sufficient spare global production capacity."

US law requires sufficient global output capacity to be available to enforce sanctions on Iran's oil sector. The White House in May, following President Donald Trump's decision to reimpose sanctions on Iran, informed Congress that enough crude is available globally for importers of Iranian crude to find alternative sources.

The sanctions law allows the administration to grant waivers for countries that take steps to cut purchases from Iran. The US in 2012-15 granted waivers for countries that demonstrated efforts to reduce their Iranian imports — interpreted as a gradual, 20pc reduction every six months.

Trump's administration has yet to develop its own metric for assessing a country's efforts to cut imports. But Washington is already claiming the wider success of its sanctions deterring foreign investment across a range of industries. Pressure on foreign firms has resulted in 50 of them cutting commercial ties with Iran, Hook says. The country's crude exports slipped for a second consecutive month to 2.28mn b/d in June, according to Iran's oil ministry.

Delhi counter

The response of India's oil sector to the US sanctions is indicative of the conflicted response among Iran's crude consumers. India's oil and foreign ministries have stuck to the position that their country will not accept unilateral US sanctions. Relations between India and the US are already strained for other reasons. Trump is engaged in trade and immigration spats with Delhi, and cancelled key strategic and defence talks with Indian officials in June.

Iran supplied around 450,000 b/d to India in the financial year 2017-18 ending 31 March, and previously announced plans to export as much as 700,000 b/d this fiscal year. The country shipped more than 700,000 b/d in May. But India's oil ministry has told state-run refiners to quietly look for alternatives.

Indian refiners will consider buying more from other Middle Eastern producers to replace Iranian grades. But they are worried that crude from alternative sources will be comparatively expensive, as Iran has given 60-day credit and freight discounts to Indian importers. India may resort to buying Iranian crude with rupees and supplying goods in return to Tehran — a practice that the country has used in the past — if the US grants waivers to India, as it did in 2012-16, officials from state-run refiners say.