U.S. Allows Oil Purchase Waivers As It Re-Imposes Iran Sanctions

Under the cover of a national focus on the mid-term elections, the White House re-imposed tight economic sanctions on Iran while still allowing 8 nations to buy oil from the country.

Secretary of State Mike Pompeo listens as Donald Trump addresses the 73rd session of the U.N. General Assembly Tuesday, Sept. 25, 2018, at the United Nations Headquarters in New York. Photo: Official White House Photo by Shealah Craighead

The sanctions were re-imposed on Iran after earlier this year the United States unilaterally pulled out of the JPCOA (Joint Comprehensive Plan of Action) agreement signed in July 2015 by Iran and the G5+1 group of nations (China, France, Germany, the European Union, Russia, United Kingdom and the United States).

The JPCOA was intended to encourage Iran to slow and perhaps completely bring a halt to its ongoing nuclear development programs in the country. In return from removing past sanctions raised against it for its nuclear weapons program, Iran had the previous sanctions lifted. Trade increased and the economy re-stabilized after the JPCOA went into effect. Iran appears to have stayed in compliance with the terms of the JPCOA, based on parties such as the European Union and authorized inspectors from the IAEA (International Atomic Energy Agency) enforcing the treaty.

The sanctions have the objective of causing severe harm to Iran’s energy, financial and shipping industries. They add up to billions of dollars in lost trade revenue for the Islamic nation.

Despite the tough rhetoric from Secretary of State Mike Pompeo and Donald Trump in re-imposing the sanctions this week, one surprise remained. The U.S. decided to allow eight nations – China, Greece, India, Italy, Turkey, South Korea, Taiwan and Japan – continue to buy oil from Iran – for now. They have been asked to phase out all oil purchases with Iran over time.

The eight nations are for the most part strong allies of the U.S. The inclusion of China, an enemy of the U.S. on trade issues and intellectual property theft, is something very different. It is likely that without the waiver China might choose to renegotiate its Iranian oil purchase deals in Chinese currency rather than the  dollar. That would undermine other strategies the U.S. is balancing in parallel.

According to Donald Trump himself in quick comments at Andrews Air Force Base on November 5, while the U.S. was actively launching the “toughest sanctions ever imposed” against Iran, he was concerned about the impact of shutting down Iran’s international oil sales. He said, “We want to go a little bit slower” on the oil sanctions, to avoid global oil prices driving rapidly upwards because of the sanctions. He said, “I could get the Iran oil down to zero immediately, but it would cause a shock to the market. I don’t want to lift oil prices.”

Even as the news of the sanctions against Iran was coming, oil prices had already begun their upward climb. As of October 3, they had risen to $76.41 per barrell as partial speculation about what might happen after November 5. With Iran having the fourth-largest oil reserves in the world and the 11th largest oil refining capacity, cutting their oil out of the international sales mix would certainly have caused harm to global markets.

Trump was concerned about this because cheaper oil has been a major objective of the policies he has pushed in his almost two years of time in the White House. It is behind his easing emissions regulations in every aspect of industrial production, working to roll back the CAFÉ auto fuel efficiency standards set during the Obama administration, and opening previously protected federal parks and reserves to oil exploration, some – such as in northern Alaska – for the first time in over 60 years.

Shortly after announced allowing the group of eight countries with waivers to buy oil from Iran amidst the sanctions, the price of West Texas Intermediate crude dropped to $61.31 a barrel.

The current wave of sanctions is already creating havoc for Iran. Although medicine and food are supposed to be shielded from the sanctions, Trump’s bully tactics which block any U.S. dollar transactions with Iran – via the highly U.S. dollar-dependent international financial system – are creating a new kind of mess. Despite that the U.S. is the only signatory to the JPCOA who has pulled out of the agreement, the U.S. has the power – via the financial system – to block just about any nation from trading with the country. Getting around those controls is difficult, and many countries and non-U.S. companies have already made decisions to exit from any contracts with Iran while the sanctions are in effect. This then leaves the black market as one of the few places where such trade can take place, but it comes with a much higher cost and other kinds of risks.

In response to the imposition of new sanctions, Gholamali Khoshroo, Iran’s U.N. ambassador, said that the U.S. has “brazenly and boldly” violated a U.N. Security Council resolution which previously unanimously endorsed the JPCOA. Khoshroo added that the U.S.’s “unilateral coercive measures” violate the International Covenant on Civil and Political Rights and the International Convention on the Elimination of All Forms of Racial Discrimination.  Further, he declared that the re-imposed sanctions were put in place “contrary to the provisionary measures that were ordered by the International Court of Justice on October 3, 2018”.

The U.S. sanctions will continue to go ahead despite these words. Based on comments by Secretary of State Mike Pompeo on November 4, it also appears the oil purchase waivers granted to the eight nations will stay in effect for the foreseeable future.