US demands all countries stop Iran oil imports

A file photo showing an oil facility in the Khark Island on the shore of the Gulf. Oil prices rose when the US said they will impose sanctions against all importers of Iranian oil, on June 26, 2018.
A file photo showing an oil facility in the Khark Island on the shore of the Gulf. Oil prices rose when the US said they will impose sanctions against all importers of Iranian oil, on June 26, 2018.PHOTO: AFP

WASHINGTON/LONDON/TOKYO (NYTIMES, REUTERS)- The United States said on Tuesday (June 26) that it will impose sanctions against all importers of Iranian oil by Nov 4, a surprisingly tough position that roiled oil markets and is likely to further alienate allies and adversaries alike.

The policy shook financial markets that had become accustomed to waivers for US sanctions that in years past had been granted to companies in countries like India and China as long as they showed steady reductions in their imports of Iranian oil.

But a senior State Department official said Tuesday morning that such routine waivers were not likely to be issued by the Trump administration, although he did not rule them out entirely.

Oil prices immediately rose on the news. The US benchmark increased nearly 4 per cent to US$70.68 (S$96.32) a barrel, while the international benchmark, Brent crude, rose 2.3 per cent to US$76.46 a barrel.

Meanwhile, Japan is analysing the impact of the sanctions on Iran, which aim to cut Tehran's oil exports out of the market, and will talk with Washington and other nations to avoid Japanese firms being adversely affected, the top government spokesman said on Wednesday (June 27).

Chief Cabinet Secretary Yoshihide Suga told a news conference that Japan and the US were in talks about the sanctions on Iran but declined to reveal details. He said Tokyo was also in contact with Iran.

Iran is the third-largest exporter among the Organisation of the Petroleum Exporting Countries (Opec), and Japan is one of its major customers along with other Asian buyers including China, South Korea and India.

Iranian oil shipments to Japan and South Korea rose after sanctions against Tehran were lifted from 2016, but they peaked at 700,000 barrels per day (bpd) in late 2016 and have fallen to around 200,000 bpd, shipping data in Thomson Reuters Eikon showed.

Japan's Prime Minister Shinzo Abe is considering going to Iran in July for talks with President Hassan Rouhani, Kyodo News reported on June 21, citing unidentified Japanese government sources.

The Trump administration may be signalling an unusually tough position to gain leverage before the first official meeting in Vienna of the remaining signatories to the Iran nuclear deal since President Donald Trump announced in May that he was leaving the accord.

US diplomats will not participate in the Vienna talks, set for next week, since the United States is no longer a party to the deal. But senior Trump administration officials will talk with European diplomats on the sidelines of the meeting about efforts to further restrain Iran.

Sanctions experts expressed a mixture of bafflement and scorn at Tuesday's announcement. They noted that countries like India and China never entirely ended their imports of Iranian crude even before Teheran agreed to the 2015 nuclear accord.

Following Washington's withdrawal from the deal, European allies vowed to resist the reimposing of sanctions. And in the midst of an increasingly bitter trade war with China, the likelihood that Beijing will entirely end its imports of Iranian oil is dubious, analysts said.

"They're going to go after the Central Bank of China just before the midterms?" said Daniel Fried, a top White House and State Department official in the administration of former president George W. Bush. "The next day's headline will be 'Dow drops 5,000 points'."

Peter Harrell, a former sanctions official in the State Department, dismissed the idea outright. "I don't see China and India going to zero," he said.

Next week's meeting in Vienna will come just two days after President Hassan Rouhani of Iran is expected to visit the Austrian capital to discuss the nuclear deal.

This month, European leaders applied for waivers to the renewed US sanctions against Iran, saying that preserving the agreement was vital to the security of their respective nations.

Few expected the waivers to be granted, but Tuesday's abrupt announcement, which largely ruled them out, could cause further strains.

Briefing reporters on condition of anonymity, a top State Department official said that he had yet to visit India or China to discuss the re-imposition of sanctions.

But he said that companies in both countries that continue to buy oil and other products from Iran after Nov 4 will be barred from selling anything in the United States.

The official acknowledged that other nations rarely want to voluntarily end imports but do so to preserve their relationships with the United States.

European diplomats spent months negotiating a side agreement to the Iran deal with Brian Hook, a top State Department official, hoping such an agreement would persuade Trump to stay in the accord.

In April, President Emmanuel Macron of France told Trump in the Oval Office that negotiations with Hook were about to yield a strong agreement. "Who's Brian Hook?" Trump responded, according to a person with knowledge of the exchange.

The failure of the nuclear negotiations, Trump's unusually combative posture at the recent Group of 7 meeting in Canada and his recent imposition of trade tariffs have left European allies weighing how far they can and should go to defy the United States. A growing number of large European companies have announced, however, that they intend to abandon Iran.

Trump said this month that his decision to pull out of the nuclear deal had already led Tehran to curb its aggressive behaviour in the Middle East, a claim analysts largely dismissed. But an economic crisis that began late last year has only deepened as the threat of sanctions loom, with growing signs of discontent among Iranians.

Robert Pape, director of the University of Chicago's Project on Security and Threats, said that sanctions work only when a country's military suppliers participate in the effort.

With Russia and China likely to continue to supply Iran with sophisticated hardware despite the sanctions, the Trump administration's efforts are not likely to succeed, he said.

"This is big stick diplomacy, and that has a long history of failure," Pape said.

On Wall Street, analysts said the coming months could see a series of price spikes in what is an increasingly tight oil market.

Iran has been exporting more than 2 million barrels a day. With Venezuelan output in decline and sporadic cutoffs occurring in Libya and elsewhere, analysts estimated that there is now only 2 to 3 million barrels a day of so-called spare capacity.

"The spare capacity cushion could become very thin, if you take Iranian exports out," said Bhushan Bahree, an oil analyst at IHS Markit, a research firm.

Big oil producers were jockeying to deal with the new realities of the oil market at meetings between Opec and other producers, like Russia, over the weekend in Vienna.

The meetings appeared to mark the effective end of the 18 months of production cuts that have drained the oil glut and more than doubled prices from their lows in early 2016.

Saudi Arabia and its allies - like Kuwait and the United Arab Emirates - pushed for production increases. Iran resisted, but the Saudis and their allies prevailed.

Khalid al-Falih, the Saudi oil minister, said on Saturday that Saudi Arabia was already ramping up exports substantially. But analysts predicted further price rises if Iran is entirely excluded from the market.

Katherine Bauer, a former Treasury Department official, said that countries are likely to balk at the Trump administration's maximalist posture.

"The risk is that you push countries to look for ways around sanctions," she said.