US issues waivers for Iran crude buyers: Update

Updates throughout

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. "We continue negotiations to get all of the nations to zero."

In making decisions on sanctions, the administration is considering the effect on oil prices and the availability of alternative crude supplies. President Donald Trump informed Congress last week that the global oil market is sufficiently supplied to prevent major price swings.

But the potential effects of oil prices have been on Trump's mind since he made the decision to withdraw the Iran nuclear agreement.

"I do not want to lift the oil prices worldwide by clamping down 100 percent," Trump said today. "It will be a gradual" reduction.

The country-specific waivers will be valid for six months. The US administration next will assess whether buyers of Iranian crude are "significantly reducing" their purchases on 3 May 2019, and every 180 days after that. The US administration has yet to clarify what criteria it uses to determine whether a reduction is significant enough to qualify that country for an exemption.

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 being very careful to advance our maximum economic pressure campaign without increasing the price of oil," State Department special Iran envoy Brian Hook said.

Hook said the administration's "projections are that oil supply will exceed demand in 2019." The State Department pointed to IEA's latest Oil Market Report and US Energy Information Administration's (EIA) US production forecast.

The IEA said in that report issued last month that the oil market was adequately supplied for the moment. But it added that "the market is clearly signalling its concerns that more supply might be needed" because of the uncertainty over Iran sanctions and the threats of disruptions in Libya and a collapse in Venezuela.

The EIA, in its latest Short-Term Energy Outlook, projected world liquid fuels production will exceed consumption by 0.28mn b/d in 2019 — but those numbers are inclusive of Iran.

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 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.

Many financial institutions globally remain wary of dealing with Iran for fear of violating US sanctions, even if that activity involves non-sanctioned commodities. The US Treasury Department insists that the escrowed funds cannot be used in transactions involving the US banking system — a serious impediment considering the role of the US dollar in international trade.

Belgium-based financial messaging service Swift today suspended access for major Iranian banks and said that its action, "while regrettable, has been taken in the interest of the stability and integrity of the wider global financial system."

The US administration had wanted Swift to fully cut Iran's access to the global banking system. In an apparent compromise, the US instead asked Swift to suspend access to the Central Bank of Iran and private banks that Washington alleges to have tied to Iran's paramilitary Islamic Revolutionary Guard.

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."