US issues 8 waivers for Iran crude buyers

The US administration will allow China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey to continue buying Iranian oil for the next six months, despite the reimposition of sanctions on Tehran today.

China and India were the largest buyers before the US announced plans to reimpose sanctions in May, and remain so today. South Korea and Japan appear to have cut purchases already.

The exemptions reflect specific circumstances and the need to keep oil markets stable, secretary of state Mike Pompeo said.

The country-specific waivers will be valid for six months. A US sanctions law invoked by the administration requires assessing every 180 days whether buyers of Iranian crude are "significantly reducing" their purchases and to exempt from sanctions financial institutions in those countries that do. The next certifications — or exemptions — will be due on 3 May 2019 and 30 October 2019.

On those dates, the "significant reduction" criteria will be measured against a lower baseline — rather than the first half of 2018, when Iran ramped up its exports in anticipation of the US action. The US administration has yet to clarify what criteria it uses to determine whether a reduction is significant.

The State Department said it did not expect to issue additional exemptions next year, expecting all buyers to fully wind down purchases. But the administration left itself wiggle room to go back on that pledge.

"We are not looking to grant additional (exemptions for buyers) at the end of the 180-day period. We are being very careful to advance our maximum economic pressure campaign without increasing the price of oil," State Department special Iran envoy Brian Hook said.

The effect of sanctions on oil prices and the availability of alternative supplies are factors that the administration must consider in making decisions on exemptions from its sanctions. President Donald Trump informed Congress last week that the global oil market is sufficiently supplied to prevent price effects.

The US Energy Information Administration, in its latest Short-Term Energy Outlook, projected that global oil supply and demand would be "nearly balanced" in 2019. It projected world liquid fuels production to exceed consumption by 0.28mn b/d in 2019 — but those numbers are inclusive of Iran.

Hook said that "our projections are that oil supply will exceed demand in 2019."

The administration bases its projection on Saudi Arabia's continued willingness and ability to make up for the lost Iranian supply. Washington is also counting on Saudi Arabia and Kuwait to re-activate production in their shared Neutral Zone and on resolution of a dispute between Iraq's central government and the Kurdistan Regional Government over northern Iraqi oil fields. US production is expected to grow by 9.5pc to 11.74mn b/d in 2019, according to the EIA.

The exemptions announced today create a very narrow scope of oil sector activity that will not be subject to US sanctions. The wider body of US sanctions reimposed today will target any foreign company investing in Iran's energy, shipping and banking sectors or doing business with state-owned NIOC, national shipping company IRISL or the Central Bank of Iran, outside of the parameters of limited trade with the countries Washington specifically exempted.

Even then, the US demands that purchasers of Iranian crude, condensate and natural gas — the latter not subject to US sanctions — deposit payments in escrow accounts in local banks, instead of wiring them to banks in Iran. Iran will have access to those funds only for humanitarian trade or bilateral trade in non-sanctioned goods and services.

Tehran responded to the US announcement with defiance. "The fact that the US exempts eight countries for buying Iran's oil, while it explicitly said that it will reduce Iran's oil sale to zero, is a victory for us," Iran's president Hassan Rohani said yesterday. "I do not think any other administration in the history of the US has been this much against the law and international treaties."

The US administration expects its sanctions to exacerbate the economic crisis in Iran to a point that Tehran agrees to accept a 12-point ultimatum requiring major changes in domestic and foreign policies - or be swept away. "The Iranian regime has a choice of making a 180-degree change in its course or see its economy crater," Pompeo said.

Iran also appears to be playing for time. "It is not just us who want this administration's term to become shorter and shorter, even their European allies tell me that this is one of their wishes," Rohani said.