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Trump administration moves to cut off Iranian oil exports

The move is designed to deprive Iran of crucial revenue, U.S. officials say, but it risks driving up gasoline prices and alienating allies.
Image: Employees at a facility at the Persian Gulf Star Co. gas refinery in bandar Abbas, Iran, on Jan. 9, 2019.
Employees at a facility at the Persian Gulf Star Co. gas refinery in Bandar Abbas, Iran, in January.Ali Mohammadi / Bloomberg via Getty Images file

The Trump administration said Monday it will scrap all waivers that allowed eight governments to buy Iranian oil without facing U.S. sanctions — a move designed to choke off Tehran's oil revenue.

Secretary of State Mike Pompeo warned foreign countries and companies that Washington would enforce U.S. sanctions banning the purchase of Iranian oil without exception, saying the Trump administration was intent on depriving Tehran of funds to build ballistic missiles and back its proxies in the Middle East.

"Any nation or entity interacting with Iran should do its diligence and err on the side of caution. The risks are simply not going to be worth the benefits," Pompeo said at a news conference.

The news prompted a surge in oil prices. Brent crude, the international benchmark for oil prices, rose $2.26, or 3.1 percent, to $74.23 per barrel on Monday.

The policy shift affects Japan, South Korea, Turkey, China and India. The three other countries that had been granted oil sanctions waivers — Taiwan, Italy and Greece — have already stopped purchasing Iranian oil.

The decision came after an internal debate in the Trump administration in recent months over how far to squeeze Iran's oil exports and after demands from Republican lawmakers, led by Sen. Ted Cruz of Texas, that the White House make good on its tough rhetoric on Iran. Administration officials last year had been anxious to avoid jolting oil markets and causing a potential spike in gasoline prices in the U.S.

The move raised the risk of aggravating relations with allies such as India, which has been one of Iran's biggest oil customers, and raising tensions with China at a moment when Washington is trying to negotiate a major trade deal. The Trump administration is also looking to Beijing to help push North Korea to agree to abandon its nuclear and missile arsenal in return for a relaxation of economic sanctions.

Iran dismissed the U.S. decision, saying it has always regarded the sanctions as illegal.

In a statement posted by the IRNA news agency, the foreign ministry said Iran was carrying out consultations with European and other international partners” on the sanctions and that it would make an unspecified announcement later on the issue.

Iran has said it has withstood U.S. economic pressure in the past and is well-positioned to absorb this latest round of sanctions. "We've survived against the United States, against the will of the United States for the last 40 years, and I believe we will survive for the next 40 years," Iranian Foreign Minister Javad Zarif said in December in Doha, adding that Tehran has perfected "the art of evading sanctions."

In a sharply worded tweet, Turkish Foreign Minister Mevlut Cavusoglu criticized the Trump administration's policy shift, which was first reported by the Washington Post on Sunday.

"The #US decision to end sanctions waivers on #Iran oil imports will not serve regional peace and stability, yet will harm Iranian people. #Turkey rejects unilateral sanctions and impositions on how to conduct relations with neighbors," Cavusoglu posted on Twitter.

Ibrahim Kalin, a senior adviser to Turkish President Recep Tayyip Erdogan, told reporters last week that Turkey "expected" another extension from the U.S. but said his government had been offered no assurances.

As of March, Iran exported about a million of barrels of oil a day, down from about 2.5 million last year.

President Donald Trump last year pulled the United States out of the 2015 nuclear agreement between Iran and six world powers. The accord had imposed strict limits on Iran's nuclear program in return for lifting U.S. and economic sanctions on the regime. But the Trump administration had condemned the agreement as deeply flawed, arguing it did not address Iran's support for militants in the Middle East or its ballistic missile program.

When Washington reimposed sanctions in November on Iranian oil exports it granted waivers to the eight governments. The current waivers expire on May 2.

Pompeo said the U.S. had made the decision after receiving assurances from Saudi Arabia and the United Arab Emirates that it would ensure an adequate supply of oil for the global market.

"I can confirm that each of those suppliers are working directly with Iran's former customers to make the transition away from Iranian crude less disruptive," Pompeo said.

Saudi Energy Minister Khalid Al-Falih said in a statement that his country would work with other oil producers "to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance."

Pompeo and other U.S. officials said oil sanctions were the most important tool at Washington's disposal to apply economic pressure on Iran.

"This is the biggest leverage we have on the Islamic Republic of Iran, is their oil exports," Brian Hook, the U.S. special representative for Iran, told reporters. "And if you want to seek a change in behavior you have to show seriousness of purpose on the oil."

Pompeo said current sanctions have already damaged Iran's finances and deprived its partners in Syria and Lebanon of cash.

"So we have watched Iran have diminished power as a result of our campaign. Their capacity to wreak harm around the world is absolutely clearly diminished," he said.

Iran has accused the Trump administration of causing a shortage of medicine due to economic sanctions and hampering the flow of humanitarian aid as the country suffers from devastating floods.

U.S. officials also said that 2018 had seen a tight oil market but that the market's outlook this year was more positive and could absorb the loss of the Iranian exports.

Behnam Taleblu, a senior fellow at the Foundation for the Defense of Democracies think tank which favors tough sanctions on Tehran, said he was not surprised by Iran's dismissive response to the decision not to reissue the waivers.

"Tehran is currently gambling that it can wait out the Trump administration's pressure policy and does not need to talk," said Taleblu.

Iran has engaged in sharp rhetoric since Trump entered office but it has not taken actions to upset the status quo, Taleblu said. Tehran has so far chosen to stay in compliance with the nuclear accord despite Washington’s withdrawal, abiding by prohibitions on sensitive nuclear activities.

Trump administration officials did not say if the U.S. would renew waivers that allow Iran to receive international assistance designed to ensure three nuclear sites are used for purely civilian purposes, including one at the Fordow facility near the city of Qom. The issue has divided administration officials.

Some Republican hardliners in Congress, including Sen. Cruz, have urged the administration to end the waivers for civilian nuclear projects.

Other experts who support the 2015 deal say discarding the civilian nuclear waivers could allow Iran to operate those sites with less scrutiny, possibly bolstering any attempt by Tehran to prepare the ground for building atomic weapons.

Pompeo's announcement came after he privately told a group of Iranian-Americans in Dallas that Washington was not seeking to topple the Iranian regime through military action, according to an Axios report.

Asked about the report, Pompeo told reporters Monday that "we've made it clear to the Iran's leaders that if Americans are attacked we will respond in a serious way."

He also said the U.S. supports the aspirations of the Iranian people but did not support any opposition group outside of Iran, including the People's Mujahedin of Iran, or the MEK. National security adviser John Bolton and Trump's personal lawyer, Rudy Giuliani, have spoken at events in the past organized by the MEK, which was previously designated by the U.S. government as a terrorist organization.