About one year after the United States decided to leave the Iran nuclear deal, the State Department is set to announce that all countries will have to completely end their imports of Iranian oil or be subject to U.S. sanctions. This is an escalation of the Trump administration’s “maximum pressure” campaign, which seeks to force Tehran to end its illicit behavior around the world.
On Monday morning, Secretary of State Mike Pompeo will announce to the media that, as of May 2, the State Department will no longer grant sanctions waivers to any country that is currently importing Iranian crude or condensate, two State Department officials told me. Last November, the State Department issued 180-day waivers to eight countries to give them more time to find alternative sources of oil. Now, their time is running out.
The decision to end waivers has implications for world oil markets, which have been eagerly anticipating President Trump’s decision on whether to extend waivers. The officials said market disruption should be minimal for two reasons: supply is now greater than demand and Pompeo is also set to announce offsets through commitments from other suppliers such as Saudi Arabia and the United Arab Emirates. Trump spoke about the issue Thursday with the UAE’s Crown Prince Mohammed bin Zayed al-Nahyan.
The decision to stop the waivers — called significant reduction exceptions, or SREs — has also become political in Washington, with hawkish officials and lawmakers publicly advocating their discontinuation. Pompeo last week accused lawmakers of “grandstanding” on the issue. Officials said Pompeo always intended to end the waivers when market conditions allowed.
“The policy of zero Iranian imports originated with Secretary Pompeo,” a senior State Department official said. “He has executed this policy in tight coordination with the president every step of the way. Because the conditions to not grant any more SREs have now been met, we can now announce zero imports.”
Officials also pointed to recent comments by U.S. special representative for Iran Brian Hook, who said earlier this month that waivers were appropriate last year due to concern over oil prices that was publicly expressed by Trump.
This year, he said, is different. “Because [in] 2019 we forecast more supply than demand, there are better market conditions for us to accelerate our path to zero,” said Hook. “We are not looking to grant any waivers or exceptions to our sanctions regime.”
Three of the eight countries that received U.S. waivers last November have already reduced their Iranian oil imports to zero: Greece, Italy and Taiwan. The other countries that will now have to cut off Iranian oil imports or be subject to U.S. sanctions are China, India, Turkey, Japan and South Korea.
China and India are currently the largest importers of Iranian oil. If they don’t go along with Trump’s demands, that could cause tensions in both bilateral relationships and spill over into other issues, like trade. South Korea and Japan are relatively less dependent on Iranian oil and have already been treading lightly. A Turkish official has said the country is “expecting” another waiver, but it isn’t getting one.
Trump has said he wants the Iranian regime to come back to the negotiating table and strike a better deal than the one President Barack Obama signed. The Iranian regime has said it has no intention of doing that. Either way, the administration’s ramping up of its “maximum pressure” campaign is meant to starve the regime of the cash it needs to perpetrate its malign activities around the world.
“The goal of the policy is to drive up the costs of Iran’s malign behavior and more strongly address the broad range of threats to peace and security their regime presents,” the State Department official said.
Although the U.S. government’s internal data tracking Iranian oil exports is not public, reports from private analysts note that Iranian oil exports rose in early 2019, perhaps as countries stocked up ahead of the cutoff, and then fell in March as countries likely sought to wean themselves off Iranian oil.
Public estimates put the approximate amount of Iranian oil exports in March at about 1 million barrels per day, down from about 2.5 million barrels per day in April 2018, the month before Trump announced that the United States was withdrawing from the Iran nuclear deal.
There are some signs the pressure is having an effect. Iran has been unable to deliver oil to Syria since January due to international enforcement of the sanctions, the Wall Street Journal reported last month, which has increased pressure on the regime of Bashar al-Assad. In March, Pompeo pointed to Hezbollah’s reported cash shortages as additional evidence that Iran’s coffers were being squeezed, with positive results for regional security.
The use of sanctions threats to pressure adversaries and allies alike is not without risk. European allies have been working with Tehran to devise methods to circumvent U.S. sanctions as part of their effort to save the Iran deal. But for now, the United States is still big and strong enough economically that companies and governments have little choice but to comply.
It’s unlikely the Iranian regime will ever sit down with the Trump administration to negotiate a better deal or fundamentally change its behavior. Starting next month, though, it will at least have less oil money to spread terrorism and mischief around the Middle East and the world.