ID : N-1928 Date : 2018/06/11 - 10:34
(Persia Digest) – In a report, the Wall Street Journal wrote that the Trump administration’s effort to pressure Iran depends on countries deeply skeptical of the U.S. campaign against the Islamic Republic, creating resistance that analysts and officials in those countries say could undercut one critical element of the push: curtailing Iran’s oil exports.
The renewed U.S. targeting of Iran’s economy comes after President Donald Trump withdrew the U.S. last month from a landmark deal in which Iran limited its nuclear program in return for restored business and financial ties with the rest of the world. The other parties to the accord—including the European Union and China, which have begun developing extensive dealings with Iran—opposed the U.S. withdrawal and are trying to maintain the deal.
The last time the U.S. ramped up the pressure on Iran, the Obama administration’s targeting of the Islamic Republic’s oil sales was a critical tool in disrupting Iran’s economy and pushing its leadership toward the agreement to restrict its nuclear program.
Iran came to the negotiating table in 2015 only after its most reliable customers had slashed their oil purchases across the board. European buyers cut back aggressively and voluntarily. Japan and South Korea, close allies of the U.S. that shared its concerns about Iran’s nuclear program, reduced their imports of Iranian oil under U.S. pressure. India, Iran’s second-biggest buyer, refused to acknowledge U.S. sanctions as legitimate, but nonetheless reduced purchases enough to placate the U.S.
Even China, Iran’s best customer then and now, bought less Iranian oil, even as it decried the unilateral U.S. sanctions and vowed to defy them.
Re-creating that scenario could prove challenging after last month’s U.S. withdrawal from the deal, known officially as the Joint Comprehensive Plan of Action, analysts and officials say.
The U.S. may get “some reductions, but not a whole lot,” said Richard Nephew, a former U.S. State Department official who implemented sanctions during the Obama administration and is now a fellow at Columbia University’s Center for Global Energy Policy. “Then we wind up screaming at our allies the Europeans over this and potentially sanctioning them, screaming at the Indians and potentially sanctioning them, while Iran potentially suffers no ill effect.”
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Trump administration officials say they are taking the same approach as the Obama administration: asking buyers of Iran’s oil to voluntarily eliminate or at least reduce their purchases, backed by explicit threats to punish any companies that do business with Iran by denying them access to U.S. markets and financial institutions.
As the Obama administration did, the current administration is giving companies up to six months to start making the reductions voluntarily. But ultimately, said U.S. Treasury Secretary Steven Mnuchin, “We will enforce compliance.”
Unlike the last time around, however, the buyers of Iranian oil are uniformly hostile to U.S. goals and likely to delay, resist and outright defy U.S. demands, according to analysts and officials in purchasing countries. Even U.S. allies in the EU, significant buyers of Iranian oil, hope to keep Iran in the nuclear deal without U.S. participation—something the Iranians say is only possible if oil sales continue unfettered.
To be sure, if Iran, which has said it would stick with the deal for now, ultimately decides to abandon it and resume its nuclear program, some countries that are resisting U.S. sanctions could eventually work more closely with the U.S. again. In 2012, EU countries voluntarily imposed a complete boycott on oil from the Islamic Republic. Other countries—Japan, South Korea, India—also cut back, driven by the combination of U.S. pressure and a desire to see Iran restrain its nuclear program. Even China, which decried the U.S. oil sanctions and vowed to defy them, reduced purchases of Iranian oil, in part, analysts say, because it wanted Iran to enter into the nuclear deal.
Now the landscape looks very different, analysts and officials say. Although the U.S. threat of shutting companies out of U.S. markets remains potent, the Trump administration so far has no active support or open cooperation from any purchaser of Iranian oil. European governments, which tried to dissuade the U.S. from pulling out of the Iran deal, have announced no plans to cut back on Iranian oil, and privately officials say they hope to avoid doing so.
Still, European companies that buy Iranian oil are dependent on U.S. markets and are expected to curtail purchases under U.S. pressure, though far more slowly than last time. Maersk Tankers AS, one of the world’s largest oil-shipping companies, said last month it would stop taking assignments for Iranian oil shipments and wind down existing customer orders. French oil giant Total SA said it has halted investments in an Iranian natural-gas field.
Companies based in other close U.S. allies, such as Japan and Korea, are also likely to grudgingly accede to the Trump administration demands, analysts say.
But that reluctance among U.S. allies could hamper Mr. Trump’s efforts with Iran’s two biggest customers: China and India. Indeed, some observers wonder whether one or both might actually buy more Iranian oil, especially if it is discounted.
China purchased Iranian oil at a rate of 671,000 barrels a day in April, while India imported 604,000 barrels a day. Together those two countries buy 60% of Iran’s total exports, more than double the combined purchases of the next two biggest importers, South Korea and Japan, according to Kpler, an oil-industry consulting firm.
During the last round, India refused to recognize the U.S. oil sanctions, but it did eventually cut imports from Iran by about 20%, enough to avoid sanctions from the Obama administration. The government has recently reiterated that it doesn’t recognize unilateral U.S. sanctions on Iran.
But quietly acquiescing to U.S. demands, as the country did last time around, would be far trickier today. Because India, which is heavily dependent on crude imports, lifted controls on gasoline prices at the pump, rising oil prices are already hitting Indian consumers directly. That is a huge headache for the ruling party of Indian Prime Minister Narendra Modi, which faces a national election early next year.
Indian government officials say they tell Washington that India needs to maintain good relations with Iran to better help the U.S. India is backing the development of a major port in the Iranian city of Chabahar, as part of a commercial corridor aimed at counterbalancing Chinese influence in Pakistan and Afghanistan, in line with a major U.S. objective in the region.
India will “seek complete exemptions” to U.S. demands it curtail imports from Iran, “or at least limit it to the minimum possible [reductions],” said a senior official in the prime minister’s office.
While India isn’t a formal ally of the U.S. like many EU countries, Mr. Modi has boasted of a strong relationship with Mr. Trump, whose administration has also prodded India to help in Afghanistan.
“They would make the case that, ‘listen, if we don’t stay engaged with Iran, and particularly with Chabahar, the only other country that you leave the field open to is China, and do you really want that?,’” said Tanvi Madan, an analyst at Brookings Institution, a Washington think tank.
China is an even tougher challenge. Iran’s biggest oil buyer has promised to work with Tehran to avoid disrupting growing investment and trade activity between the two countries. China has also encouraged the use of its currency, the yuan, for international commerce such as oil trading, which traditionally has been conducted almost entirely in dollars. The country recently introduced new crude-oil futures priced in yuan.
Some analysts see the potential for China to increase its imports of Iranian oil with at least tacit support from Europe. That would help keep the Iran deal in place without U.S. participation by making Iran whole through oil purchases the U.S. gets other parties to cut.
“We have a joint interest in keeping the Iran deal alive,” said Nicola Casarini of the Rome-based think-tank Institute of International Affairs at a recent regional security conference in Shanghai.
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