The United States on Monday said it would eliminate in May all waivers granted to eight economies allowing them to buy Iranian oil without facing US sanctions, as it ratcheted up pressure to choke off all oil revenues of the Islamic Republic.
The decision, taken by president Donald Trump, has sent oil prices to their highest in 2019, even though the White House said the United States was working with top OPEC exporter Saudi Arabia and the United Arab Emirates to ensure the oil market is ‘adequately supplied.’
The sanctions were imposed as Washington pressed Iran to curtail its nuclear program and stop backing militant proxies across the Middle East.
Secretary of state Mike Pompeo on Monday reiterated that Washington’s goal was to bring down exports of Iranian oil to zero and added the United States had no plans to give any grace period beyond May 1 for countries to comply.
‘Today I am announcing that we will no longer grant any exemptions,’ Pompeo said in a briefing. ‘We are going to zero. We’re going to zero across the board.’
Oil prices spiked after Sunday reports that the waivers would end and remained higher on Monday. International benchmark Brent rose 2.6 per cent to $73.87 a barrel after earlier touching $74.31, highest since early November. US crude futures gained 2.4 per cent, or $1.52 a barrel, to $65.52.
It earlier touched a high of $65.87, a level not seen since late October.
The United States reimposed sanctions in November on exports of Iranian oil after Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers last May. Trump had frequently criticized the accord, reached under predecessor Barack Obama, as ‘the worst deal ever.’
Along with sanctions, Washington granted waivers to eight economies that had reduced their purchases of Iranian oil, allowing them to continue buying it without incurring sanctions for six more months. They were China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece.
The United States had been deliberating over the past couple of months whether or not to renew some of the waivers while avoiding a spike in oil and fuel prices that could hurt U.S. consumers.
Iran’s exports have fallen to less than 1 million barrels per day from more than 2.5 million bpd before sanctions were re-imposed a year ago.
In recent months, Saudi Arabia and other OPEC members have cut supply dramatically. While the kingdom is expected to boost output again, analysts fear that the U.S. move – along with sanctions on Venezuela’s oil industry – will leave the world with inadequate spare capacity
Officials in Asia opposed the expected US move, pointing to tight market conditions and high fuel prices that were harming industry.
Oil markets have tightened this year because of supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC).
As a result, Brent prices have risen by more than a third since January, and WTI by more than 40 per cent.
Analysts said they expected the Trump administration to push OPEC and its de-facto leader Saudi Arabia to stop withholding supply to calm market fears of oil shortages.
Trump spoke with Saudi Arabia’s crown prince Mohammed bin Salman by phone last week, and discussed ways of ‘maintaining maximum pressure against Iran.’
The source familiar with Saudi thinking said any action by OPEC’s biggest producer depends on the certainty of scrapping the waivers and its effect on the oil market. Saudi Arabia has about 2 million barrels of oil per day of spare capacity.
Riyadh raised its oil output last year after the Trump administration pledged to bring Iranian crude exports to zero, only to grant waivers later triggering a decline in prices and build-up in oil inventories.
‘The Saudis don’t want to make the same mistake again,’ one OPEC source said.
Iraq, OPEC’s second largest producer, is committed to the global supply cuts taken by OPEC and its allies and any decision to raise production must be taken collectively, an Iraq oil ministry spokesman said on Monday.
Iraq is among major producers from OPEC and non-OPEC who are meeting next month in Jeddah, Saudi Arabia, as part of a panel committee to discuss the oil market and make output recommendations, the spokesman said.
An end to the exemptions would hit Asian buyers hardest. Iran’s biggest oil customers are China and India, who have both been lobbying for extensions to sanction waivers.
Geng Shuang, a Chinese foreign ministry spokesman, said at a daily news briefing in Beijing on Monday that it opposed unilateral US sanctions against Iran and that China’s bilateral cooperation with Iran was in accordance with the law.
He did not say whether China would heed the US call to cut Iran oil imports to zero.
In India, refiners have started a search for alternative supplies.
The government, however, declined to comment officially.
‘We are engaged with the US administration on this matter and once the US side makes a comment on this matter, then we will come up with a comment,’ said a source at India’s foreign affairs ministry who declined to be named.
‘I expect India to fall in line with the sanctions,’ said Sukrit Vijayakar, director of Indian energy consultancy Trifecta.
South Korea, a close US ally, is a major buyer of Iranian condensate, an ultra-light form of crude oil that its refining industry relies on to produce petrochemicals.
Government officials there declined to comment, but Kim Jae-kyung of the Korean Energy Economics Institute said the end of the sanction waivers ‘will be a problem if South Korea can’t bring in cheap Iranian condensate (for) South Korean petrochemical makers.’
Japan is another close US ally in Asia that is also a traditionally significant buyer of Iranian oil.
The government also declined to comment ahead of an official US announcement, but Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corporation (JOGMEC), said the end of the sanction waivers ‘is not a good policy for Trump.’
Prior to the re-imposition of sanctions, Iran was the fourth-largest producer among OPEC at almost 3 million bpd, but April exports have shrunk to well below 1 million bpd, according to ship tracking and analyst data in Refinitiv.
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