The United States has agreed to give eight countries waivers from the tough round of Iran sanctions that will go into effect next week.
The waivers will allow those countries to continue buying Iranian oil. Recipients include close U.S. allies India, South Korea, and Japan, along with top American economic rival China.
Bloomberg News reported on Friday morning that details for China’s waiver are still under negotiation. The four other countries that will be granted waivers were not identified by Bloomberg’s sources, who said Secretary of State Mike Pompeo will make a formal announcement later on Friday and all eight nations will be officially named on Monday.
Turkey, which views Iran as a vital oil supplier and has enjoyed improved relations with the United States over the past few weeks, is a good guess for one of the remaining recipients.
The waivers are described as “temporary” and conditioned on the eight countries steadily reducing Iranian oil imports while they are in effect. Details such as how much Iranian oil the recipients can buy and how long the waivers will last were not disclosed. For comparison, Bloomberg recalled the Obama administration granting 20 waivers to Iran sanctions before the nuclear deal lifted them, and those waivers specified import reductions of about 20 percent over six months.
The waivers granted by the Trump administration will come with some important restrictions designed to ensure the money from oil purchases is not abused by Iran to finance terrorism and military operations across the Middle East:
Countries that get waivers under the revived sanctions must pay for the oil into escrow accounts in their local currency. That means the money won’t directly go to Iran, which can only use it to buy food, medicine or other non-sanctioned goods from its crude customers. The administration sees those accounts as an important way of limiting Iranian revenue and further constraining its economy.
“It’s a virtual certainty that Western banks are not going to violate the escrow restrictions,” said Mark Dubowitz, the chief executive of the Washington-based Foundation for Defense of Democracies who has advised Pompeo. “The message they’re sending is don’t screw around with these escrow accounts and try to get cute.”
China, India, South Korea, and Japan are among the top customers for Iranian oil, as is Turkey, if it does indeed receive a waiver. The Chinese have eagerly anticipated India, South Korea, and Japan turning away from the United States if they were not granted waivers to purchase Iranian oil.
Granting exemptions to nearly all the top buyers of Iranian oil will naturally raise criticism that the Trump administration is backing away from its stated desire to reduce Iranian oil exports to zero.
Secretary Pompeo restated that objective as recently as September, although his much-quoted statement about America’s “expectations” came in the context of explaining why waivers could still be granted to countries like India:
We have told the Indians consistently, as we have told every nation, that on November 4th the sanctions with respect to Iranian crude oil will be enforced, and that we will consider waivers where appropriate, but that it is our expectation that the purchases of Iranian crude oil will go to zero from every country, or sanctions will be imposed. So we’ll work with the Indians. We committed that we would do that. Many countries are in a place where they – it takes a little bit of time to unwind, and we’ll work with them, I am sure, to find an outcome that makes sense.
And from whence they purchase the other crude oil, we’re happy to see if it’s American products that are able to deliver for them. I think that’d be a great outcome. But our mission set is to make sure that Iran doesn’t engage in malign behavior with wealth that comes from countries around the world, thus the purpose of the sanctions.
The waivers described by Bloomberg’s sources are consistent with the strategy Pompeo described, acknowledging that “it takes a little bit of time to unwind” by giving the eight recipients more time to scale down their Iranian oil purchases. The escrow system for oil money should satisfy Pompeo’s mission statement that Iran must not be allowed to “engage in malign behavior” with its wealth.
In fact, the escrow accounts might do the regime in Tehran a favor by obliging it to spend more money on the welfare of its people instead of financing foreign wars, a top complaint of protesters in Iran. Sadly, Iran’s leadership is unlikely to thank the Trump administration for helping it to achieve spending discipline at last.
The waivers were nevertheless criticized immediately as the Trump administration backing away from its zero-export goals. Olivier Jakob of the consulting firm Petromatrix told Reuters on Friday that eight waivers is “much higher than anybody expected.”
“Despite the tough talk, the issuance of so many waivers provides a lifeline to Iran,” Jakob said.
Bloomberg’s report included oil price data from the past month that suggests the last-minute waivers are what everyone expected, more or less. Oil prices have been falling steadily instead of rising in a panicked crescendo, as one might expect them to do if a major supplier was about to disappear from the market overnight.
The expectation appears to have been something along the lines of a gradual reduction after November 5, coupled with increased exports from other countries to balance the loss of Iranian oil, which has already dropped from 2.7 million to 1.6 million barrels per day since the United States withdrew from the nuclear deal. In a happy coincidence for Americans, the newly-crowned top oil producer in the world is the United States.
Iranian oil sales are down 37 percent since President Donald Trump announced sanctions would be imposed. The disruption in the oil markets on November 5 is still expected to be the largest since Libyan production was choked off by its civil war, although the cushioning effect of increased production from other producers and the new waivers is difficult to calculate. Analysts expect Iranian exports will fall below the previous low of 1 million barrels per day achieved under pre-nuclear-deal sanctions in 2012.