The Trump administration slapped sanctions on Iran with the objective of crippling its economy but at the same time granted waivers to Iran’s top eight oil importers China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey – exemptions that would undermine the effectivity of the sanctions, prompting Trump critics to maintain that, like his other directives, the sanctions are more bluster than substance. This view was strengthened as the international price of oil fell on 2 November as traders realized that the sanctions may not immediately lead to a decline in Iranian oil exports.
Apart from penalizing countries and companies that continue to purchase oil from Iran, the country’s major export item, the Trump administration has also blacklisted 50 Iranian banks and subsidiaries, including Iran’s central bank, more than 200 people and ships, Iran’s national airline and more than 65 Iranian aircraft. This enables the United States to seize assets under its jurisdiction that are owned by blacklisted people and entities that make circumventing the sanctions more of a challenge. The sanctions also forbid commercial relations with those blacklisted.
US Secretary of State Mike Pompeo, however, claimed that sanctions had begun to bite and added that “more than 20 importing nations have zeroed out their imports of crude oil already taking more than one million barrels of crude per day off the market.” The threat to the economies of the eight countries, barring Taiwan, granted a temporary waiver was therefore real and may account for their decision to reduce oil imports from Tehran as a direct outcome of US pressure. This includes China’s top refiner Sinopec listed in Hong Kong and New York, which has halved its oil imports from Iran in September to 130,000 bpd. Indian state-owned refiners contracted last month to import 1.25 million tonnes of crude oil from Iran, subsequent to approval from the US, and have prepared to replace dollar payments with rupee trade. In other words, money would not change hands. According to The Economic Times, India, “Iran has been off-and-on taking rupee payments for oil it sells. This rupee it uses for paying for imports of medicines and other commodities. A similar arrangement is in the works.” South Korea and Japan also decreased their oil imports from Iran in advance of the 5 November sanction deadline set by the US.
However, Spain, France and Germany were not granted any waiver by the US perhaps because their imports from Iran were never a significant percentage of their total fuel imports which may explain Pompeo’s claim that ‘we decided to issue temporary allotments to a handful of countries responsive to specific circumstance and to ensure a well supplied oil market.’ However Trump has been known to publicly make an example of those who oppose him, particularly on twitter, prompting many to argue that the reason may well be the fact that France, Germany and the UK expressed ‘regret’ at Trump administration’s decision to pull out of the P5 plus 1 nuclear programme deal with Iran and their categorical statement that they would seek to protect European companies doing legitimate business (as defined by the P5 plus 1) deal and set in place a special purpose vehicle, a non-dollar payment system, in place which would become operational from early next year.
Iranian President Rouhani stated that “this is an economic war against Iran but... America should learn that it cannot use the language of force against Iran ... We are prepared to resist any pressure.” This too could be bluster because the Iranian economy can ill afford any decline in its foreign exchange earnings. However, the actual impact of the sanctions is still to be determined.
Pakistan hosted a two-day visit by the Iranian Foreign Minister Zarif end August who met with Pakistani civilian and military leadership. Foreign Minister Qureshi stated that the country supported Iran’s “principled stance” on its nuclear deal with P5 plus 1 and “Pakistan stands with Iran in this hour of need,” however it is doubtful if the Prime Minister’s offer to mediate between Iran and Saudi Arabia would be taken up by either country. Pakistan with a good assistance package from Saudi Arabia is unlikely to consider any major deal with Iran, including progress on the Iran-Pakistan gas pipeline, though one would assume that unregistered trade would continue.
Be that as it may, Iran has made it clear that it has so far been able to sell as much oil as it needs!