US eyes limited waivers for Iran crude buyers

The US administration likely will enable some countries to continue importing oil from Iran in the short term, despite Washington's maximum pressure campaign against Tehran, White House national security adviser John Bolton said today.

"We understand, obviously, that a number of countries, some immediately surrounding Iran, and others that have been purchasing oil, may not be able to go all the way to zero," Bolton said at a forum hosted by the Washington-based Alexander Hamilton Society. "We want to achieve maximum pressure, but we do not want to harm friends and allies either. We are working our way through that."

The sanctions statutes that President Donald Trump re-activated in May require the administration to assess by 4 November, and every 180 days after that date, whether buyers of Iranian crude are "significantly reducing" their purchases. The administration can then sanction financial institutions in countries that it deems have not cut their purchases adequately and grant exemptions to countries that do.

The State Department is expected to provide such exemptions before the full brunt of US sanctions pressure begins on 5 November, even though the scope of waivers is yet undetermined.

China, India and Turkey were among the largest buyers of Iranian crude before the US withdrew from the Iran nuclear deal. US sanctions explicitly exclude exports of natural gas from Iran to its neighbors, but lack of guidance from Washington has created uncertainty for natural gas importers in Turkey and Iraq.

Iranian oil exports have fallen faster and by a greater amount than initially expected, as refiners in Asia-Pacific and Europe curbed their purchases, despite opposition from some of their governments.

"You already see reduction in purchases in countries like China, that you would not have expected, countries that are still in the nuclear deal," Bolton said. "European businesses are fleeing the Iranian market. Most of the big ones are already out."

Argus estimates that Iranian crude loadings fell to 1.58mn b/d in September, down by 12pc since August. But these figures do not include vessels belonging to Iran's state-owned NITC, which have stopped transmitting GPS transponder signals. Iran's exports averaged 2.5mn b/d in January-May.

Trump's decision to reimpose sanctions on Iran has contributed to higher oil prices globally, an analysis by the US Energy Information Administration (EIA) shows. But Bolton today downplayed the effect on oil markets.

"One of the things this administration has done that (former president Barack Obama's) administration did not do was to encourage producers to alter their production to make up for the lost output in Iran," Bolton said. "It has been an interesting exercise, but we have been able in some cases to find alternative purchases for the buyers of Iranian oil," he said, without providing details.

Russia and Saudi Arabia increased production since June. Opec and its non-Opec allies will produce as much as necessary to meet global demand and offset any supply disruptions, Saudi oil minister Khalid al-Falih says.

Growing US output and a lower oil import bill have enabled the administration to implement stricter restrictions than were imposed between June 2012 and January 2016 under Obama. These factors also influenced the layout of sanctions in the run-up to 5 November.

"It is important to remember the context in which the Obama administration negotiated (sanctions exemptions) in 2012," given oil prices above $100/bl amid a presidential re-election campaign, said Richard Goldberg, a former congressional aide who helped craft Iran sanctions legislation.

"Their strategy was to announce exemptions early to show that the US was willing to provide exemptions and demonstrate that other countries are reducing purchases from Iran," said Goldberg, a senior fellow at the Washington-based advocacy group Foundation for Defense of Democracies, which backs the administration's Iran policy.

By contrast, Trump's administration - partly as a negotiating tool - has kept the scope of waivers unclear, even as the sanctions deadline approaches. It also has yet to clarify the scope of possible financial sanctions and to explicitly exclude condensate from US sanctions.

"Ultimately the Iranians are evaluating what is going to happen on 5 November, how sanctions will be enforced" and what concessions on financial sanctions the EU has managed to extract from Washington, Goldberg said.

Forcing Iranian exports to zero remains the primary objective, Bolton said. "The president said unmistakably our goal is maximum pressure. There has to be a fundamental change in the behavior of the Iranian regime."