US weighs Iran oil waivers amid other crises

Washington must consider ever tighter global crude supplies as the deadline for its next round of Iran sanctions exemptions looms

Washington has to confront a new set of challenges facing global oil markets as it considers again how strictly to enforce sanctions against Iranian crude exports.

The six-month exemptions from US sanctions to enable China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey to continue buying Iranian oil expire in early May. The State Department says it will announce its decision on whether to renew the waivers by 2 May. Administration officials are reviewing whether oil supply is sufficient to offset the loss of Iranian crude, assistant secretary of state for energy resources Frank Fannon says. "We continue to go through that evaluation on a very frequent basis, taking into consideration the totality of other policy interventions, as well as other factors," he says.

The policy intervention that complicates the task involves the continuing crisis in Venezuela. US sanctions on state-owned PdV, imposed in January to pressure President Nicolas Maduro to resign, have cut off US markets from Venezuelan exports. The ban on US sales of naphtha to the country and a prolonged failure of Venezuela's power grid have accelerated the decline in crude production and exports. Meanwhile, the other Opec members continue to implement output cuts in line with an agreement with Russia and other leading non-Opec producers.

The EIA is taking note of the change in market balance — its latest report on the effects of sanctions notes that a total embargo on crude exports from Iran would leave a greater shortfall in world oil markets than it estimated earlier this year. The EIA assessment of oil market balance plays a role in determining how vigorous the US policy of sanctions against Iran can be, as having sufficient, adequately priced supply is a prerequisite for their enforcement.

"The target of our campaign of maximum pressure is the Iranian regime, not importing countries," Fannon says. But the administration has to consider the cumulative effects of sanctions on Iran and Venezuela, its inability to persuade Opec to change course on output cuts, and possible repercussions from Libya, where revived civil conflict indirectly raises the prospect of further oil supply disruptions, Harvard University's director of energy project geopolitics, Meghan O'Sullivan, says. "Even in the face of burgeoning US shale production, can all this be done without raising prices to a point where it creates political pressure?"

You let it flow, the oil

The US administration is still trying to persuade Riyadh to ramp up oil production, which it did before the restart of Iranian sanctions last November. President Donald Trump on 9 April made a direct appeal to Saudi crown prince Mohammad bin Salman to co-ordinate the anti-Iran policy. But Riyadh is holding firm — Opec is likely to decide on whether to extend its production cuts in June, after Washington's Iran sanctions decision is announced. The situations in Iran and Venezuela are among the factors the Opec/non-Opec group are watching to determine their course of action on output cuts, Russian president Vladimir Putin says.

Washington could instead eliminate some of the waivers or cut the import allowance associated with each exemption. The administration is determined to step up pressure on the Iranian economy regardless of the decision, by labelling Iran's paramilitary Islamic Revolutionary Guard a "terrorist organisation". The calculus behind the designation is to make Tehran's remaining foreign partners even more wary of continuing business deals with Iran.

The US appears to be taking a similarly cautious approach to Venezuela, despite having issued a threat of sanctions against PdV's non-US customers. It is instead targeting Venezuelan oil movements to Cuba in a bid to isolate Maduro from a key ally.