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Trump Moves to Drive Iran Oil Exports to Zero

President of Iran Hassan Rouhani during the trilateral meeting of the heads of states, guarantors of the Astana process for facilitating the Syrian peace settlement.
President of Iran Hassan Rouhani during the trilateral meeting of the heads of states, guarantors of the Astana process for facilitating the Syrian peace settlement. (Photo: Kremlin.Ru)

“This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.”

President Donald Trump revoked sanction exemptions that were issued last November for China, India, Japan, South Korea and Turkey who are still buying Iran’s oil.

The announcement came Monday and declared the current exemptions will expire on May 2. After the deadline, any countries or companies continuing to buy oil from Iran risk being cut out of the U.S. financial system.

The withdrawal of the exemptions aims to drive Iran’s oil exports down to zero and cripple Iran’s economy, as oil exports are the country’s primary income. 

“President Donald J. Trump has decided not to reissue Significant Reduction Exceptions (SREs) when they expire in early May,” the White House said in a statement. “This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.”

Fact Sheet: "MAXIMUM ECONOMIC PRESSURE" Released via State Department. Washington, DC April 4, 2019

Fact Sheet: “MAXIMUM ECONOMIC PRESSURE” Released via State Department. Washington, DC. April 4, 2019

Iran has so far claimed Washington’s sanctions on Iran were illegal. Trump applied an embargo last year after withdrawing from the Iran deal signed in 2015.

Iranian Foreign Minister, Mohamad Javad Zarif, called the U.S. threat to reinforce sanctions a trick devised by Trump, U.S. National Security Advisor John Bolton and Israeli Prime Minister Benjamin Netanyahu meant to topple Iran’s regime under president Hassan Rouhani.

Reactions to US Announcement

The European Union (EU) said they regretted Washington’s decision to end sanction relief for Iran crude oil buyers.

Brussel’s Minister of Foreign Affairs and Security spokesperson, Maja Kocijancic, stated the bloc would not follow U.S suit, adding that the E.U would still stick to the 2015 Iran nuclear deal.

The EU will “continue to abide by (the deal) as long as Iran continues with full and effective implementation,” she said.

Iran and the EU have continued to abide by the 2015 Iran deal which had promised Iran sanction relief for abandoning any nuclear weapons program.

In response to the U.S. sanctions, Germany, France and Britain together are launching a financial tool to help European companies continue to do business with Iran without suffering consequences from U.S. sanctions. However, that tool is not yet complete.  

Diplomacy Via a Prisoner Swap?

Iranian Foreign Minister, Mohamad Javad Zarif, proposed an inmate swap with the U.S. on Wednesday, perhaps in a move to improve diplomatic relations as they worsen under the weight of U.S. sanctions.

“I put this offer on the table publicly now, exchange them, all these people that are in prison inside the United States, on an extradition request from the United States,” Zarif stated.

Iran was also ready to hand over Nazanine Zaghari-Ratcliffe, as Zarif said on Wednesday, as part of a prisoner swap with the U.K. Zaghari-Ratcliffe is a British-Iranian volunteer who was detained on spying allegations and given a five-year sentence. The U.K. claims the charges against her are bogus and she is being detained to use as leverage. However, Zarif walked back the offer on Thursday and the U.K. said they refused to participate in any deal that presumed Zaghari-Ratcliffe was guilty.

Sanction Impact on Oil Market

Iran said it would remain defiant and maintain contacts with its international partners despite Washington’s threats.

Turkish Foreign Minister Mevlut Cavusoglu tweeted that the U.S. step will not support regional peace and stability and only hurt Iranians.

Turkey has grown closer to Iran in the past few years as the former’s energy needs increase. In 2017, before the U.S. pulled out of the Iran nuclear deal, Iran’s oil supplied 45 percent of Turkey’s crude oil imports.

China is also committed to cooperating with Iran and is against the U.S. sanctions, adding that the China-Iran partnership is open, lawful and transparent.

Japan’s Cabinet Secretary, Yoshihide Suga, as quoted by the Financial Times, said the U.S. decision would not have a negative impact on Japanese companies. The country’s oil refineries reportedly stopped importing Iranian oil in March.

South Korea stopped buying Iran’s oil for four months due to the U.S. sanctions but started to buy it again in January. In March, South Korea imported 284,600 barrel per day.

The benchmark price of Brent crude oil rose 3.33 percent to $74.37 per barrel in Monday’s trading session-the highest since November 1.

While the price of West Texas Intermediate jumped 2.90 percent to $65.93.

Will the cancellation of waivers be effective?

By revoking waivers granted to Iran’s oil buying countries, the U.S. is attempting to force Iran to have a dialogue following the U.S departure from the nuclear deal.

Trump has slammed Iran for allegedly producing nuclear weapons and violating the agreement, despite the International Atomic Energy Agency – which is responsible for monitoring the deal – stating that Iran is complying with the agreement.

But the sanctions will not be effective in changing Iran’s behavior, as two political experts, Aaron David Miller and Richard Sokolsky, told NPR.

According to them, Washington’s underlying assumptions in re-imposing sanctions are that major oil exporters such as Saudi Arabia and the UAE will boost production to control oil prices. And that countries such as China, Turkey, and India will cut their oil imports from Iran, leaving Iran with limited options to ship their oil.

In reality, those assumptions are wrong according to Miller and Sokolsky who argue that Saudi Arabia and the UAE will not increase their oil output for long, due to concern for stability in the oil market. Additionally, they say that Iran’s “heavy oil” cannot be easily replaced by Saudi light crude.

They also claim that Iran and its trading partners will simply find ways to outsmart U.S. sanctions. Lastly, Iran can threaten the U.S. by blocking the Strait of Hormuz, which is the only route seafaring route for oil shipments out of the Persian Gulf.

As Market Watch reported, around 18.5 million barrels a day of crude and refined products moved through the Strait of Hormuz in 2016, nearly a third of all seaborne-traded oil and almost 20% of all oil produced globally.

Yasmeen Rasidi

Yasmeen is a writer and political science graduate of the National University, Jakarta. She covers a variety of topics for Citizen Truth including the Asia and Pacific region, international conflicts and press freedom issues. Yasmeen had worked for Xinhua Indonesia and GeoStrategist previously. She writes from Jakarta, Indonesia.

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