The White House announced on Monday that it would terminate waivers from U.S. sanctions granted to some of Iran’s biggest oil customers, in a major step towards the administration’s goal of reducing Iranian oil exports to zero.
When President Donald Trump withdrew from the Iranian nuclear deal last May and restored sanctions on Iranian oil in November, he granted waivers to eight countries that purchased large quantities of Iranian oil, including several close U.S. allies. China, India, South Korea, Japan, Italy, Greece, Taiwan, and Turkey received exemptions to continue importing Iranian oil without facing penalties from the United States.
Most of the recipients had already reduced their purchases of Iranian oil, several made commitments to cut back even more, and three nations – Greece, Italy, and Taiwan – have reduced Iranian imports to zero.
Critics of the waivers pointed out that even with these reductions, most of Iran’s biggest customers were given permission to keep on buying oil, seriously compromising the punitive effect of the sanctions. The Trump administration hinted all along that some of the waivers would not be renewed when the six-month duration of the first round expired.
Six months have now elapsed, and on Monday the administration stunned oil market analysts by declining to renew any of the waivers. Most analysts expected at least half of them to be extended for another six months.
Monday’s White House statement indicated Saudi Arabia and the United Arab Emirates would join with the surging American oil industry to make up for the lost Iranian oil and keep market prices stable:
President Donald J. Trump has decided not to reissue Significant Reduction Exceptions (SREs) when they expire in early May. This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue. The United States, Saudi Arabia, and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied. We have agreed to take timely action to assure that global demand is met as all Iranian oil is removed from the market.
The Trump Administration and our allies are determined to sustain and expand the maximum economic pressure campaign against Iran to end the regime’s destabilizing activity threatening the United States, our partners and allies, and security in the Middle East. The President’s decision to eliminate all SREs follows the designation of the Islamic Revolutionary Guard Corps as a Foreign Terrorist Organization, demonstrating the United States commitment to disrupting Iran’s terror network and changing the regime’s malign behavior. We welcome the support of our friends and allies for this effort.
CNBC on Monday quoted Saudi Energy Minister Khalid al-Falih promising to “coordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance.”
“In the next few weeks, the Kingdom will be consulting closely with other producing countries and key oil consuming nations to ensure a well-balanced and stable oil market, for the benefits of producers and consumers as well as the stability of the world economy,” he said.
Iran’s top customer China was enraged by the termination of its waiver, as expressed through a statement released by its Foreign Ministry:
China opposes the unilateral sanctions and so-called “long-arm jurisdictions” imposed by the US. Our cooperation with Iran is open, transparent, lawful and legitimate, thus it should be respected. Our government is committed to upholding the legitimate rights and interests of Chinese companies and will play a positive and constructive role in upholding the stability of the global energy market.
The Chinese have invested billions of dollars in developing Iranian oil fields and heavily relies on purchasing Iranian products at discount prices. The Chinese reduced their Iranian imports before waivers were granted in November but then began ramping up again at the end of 2018.
President Trump’s Twitter comment on the waivers took a slam at former Secretary of State John Kerry, who infamously launched a campaign of “shadow diplomacy” to undermine U.S. policy and preserve the Iran nuclear deal after the United States withdrew:
Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil. Iran is being given VERY BAD advice by @JohnKerry and people who helped him lead the U.S. into the very bad Iran Nuclear Deal. Big violation of Logan Act?
— Donald J. Trump (@realDonaldTrump) April 22, 2019
Current Secretary of State Mike Pompeo said the U.S. would offer no further exceptions for Iranian oil importers:
Maximum pressure on the Iranian regime means maximum pressure. That’s why the U.S. will not issue any exceptions to Iranian oil importers. The global oil market remains well-supplied. We’re confident it will remain stable as jurisdictions transition away from Iranian crude.
— Secretary Pompeo (@SecPompeo) April 22, 2019
National Security Adviser John Bolton stressed the administration’s determination to starve the “corrupt Iranian regime” of revenue:
Under the President's leadership we have taken unprecedented steps to impose maximum pressure on Iran. We are going to ZERO waivers for oil exports from the corrupt Iranian regime, denying it the largest source of its revenue.
— John Bolton (@AmbJohnBolton) April 22, 2019
Oil prices spiked on Monday to their highest levels since the U.S. restored sanctions on Iranian oil in November. Analysts pointed to the recovery of China’s manufacturing sector and expectations of a commensurate increase in demand for oil as another reason for the price increases. The markets are also nervous about possible supply disruptions from politically unstable providers such as Venezuela and Libya.
Traders are presumably also anxious to learn if OPEC policy changes, or Saudi Arabia and the UAE defy the cartel, in order to produce enough oil to offset the loss of Iranian products. OPEC reduced output over the past few months in an effort to shore up global market prices. The Trump administration has resisted congressional efforts to compel a more negative policy stance toward Saudi Arabia, probably with an eye toward securing Saudi assistance in keeping oil prices stable after the end of the Iranian waivers.
Iran’s response to the end of oil waivers included a renewed threat to blockade the Strait of Hormuz, through which much of the world’s oil supply passes.
“According to international law, the Strait of Hormuz is a marine passageway and if we are barred from using it, we will shut it down. In case of any threat, we will have not even an iota of doubt to protect and defend the Iranian waters,” said Islamic Revolutionary Guards Corps Naval Forces commander Alireza Tangsiri.
The Trump administration classified the IRGC as a foreign terrorist organization on April 8, the first agency of a foreign government that has ever been formally designated as a terrorist operation.