Once a major customer, the U.S. hasn’t bought oil from Iran for more than 25 years. How, then, can it lead a global movement to stop Iran from selling its chief export?
Once a major customer, the U.S. hasn’t bought oil from Iran for more than 25 years. How, then, can it lead a global movement to stop Iran from selling its chief export? The answer is simple: “Do business in Iran or in the United States,” State Department official Brian Hook said. The last, and largest, U.S. sanctions on Iran go back into effect on Monday, targeting the nation’s energy and financial sectors and capping a campaign by President Donald Trump’s administration to drive companies out of Iran. Even though the U.S. has said it will grant temporary waivers to eight countries — including Japan, India and South Korea — the global squeeze on Iran has already begun.
1. How can the U.S. tell other countries what not to buy?
As with other sanctions campaigns, U.S. leverage rests with the central role American banks — and the U.S. dollar — still play in the global economy. So any country, company or bank that violates the terms of the U.S. sanctions could see their U.S.-based assets blocked or lose the ability to move money to or through accounts held in the U.S. In essence, the Trump administration is betting that nations, banks and businesses worldwide will decide they’d rather do business with the U.S.
2. Will everybody cooperate in this?
Perhaps, though there’s been talk in the European Union of finding some sort of alternative mechanism that would allow companies to continue to do business with Iran without falling afoul of U.S. sanctions. But EU officials have struggled to detail this strategy and the U.S. has already warned that the Swift messaging service used by financial institutions could be targeted if it allows transactions with Iran to continue.
3. How much oil is at risk?
OPEC’s third-largest producer was pumping close to 4 million barrels a day earlier this year, with more than half of that going to exports. Buyers have already been reducing purchases in anticipation of the sanctions, cutting Iran’s oil exports from 2.7 million to 1.6 million barrels a day, according to U.S. estimates. Secretary of State Mike Pompeo had repeatedly said the U.S. goal is to reduce exports to zero, even as he acknowledges that some countries may need to continue buying oil from Iran.
4. Where does Iran sell most of its crude?
Iran ships mostly to buyers in Asia, with Europe running a close second. China and India, two of the biggest oil importers, feature prominently on its list of buyers, as does Turkey, Japan and South Korea. Depending on the terms of the waivers, the buyers may be allowed to purchase dwindling amounts of Iranian crude, paying for it through an escrow account that will limit the proceeds to purchases of food and medicine. Pompeo has said the U.S. won’t grant a blanket waiver for the European Union, as happened under the Obama administration.
5. Where else will oil come from?
Three countries — Saudi Arabia, Iraq and Russia — are in the strongest position to fill the expected shortfall in the heavier, or more viscous, oil that Iran provides. Heavy crudes like Iran’s are better for making diesel, jet fuel and other middle distillates, while lighter crudes, such as U.S. West Texas Intermediate, are generally more valuable for refiners because they readily yield more high-value light products including gasoline. The White House said it expects U.S. oil production, which climbed 2.1 million barrels a day in August from a year earlier, to grow “by 1 million barrels per day or more” in the next year.
6. How did we get here?
The 2015 Iran nuclear deal — which eased economic sanctions on the Islamic Republic in exchange for restrictions on its nuclear program — allowed Iran to resume selling oil widely. Despite broad international support for the accord, Trump and his allies said the deal never addressed what they see as Iran’s malign behavior in the Middle East, its support for terrorism or its ballistic missile program. Trump wants a new, tougher deal, and to get it, he’s reimposing the sanctions.