U.S. Toughens Stance on Future Iran Oil Exports

WASHINGTON—The U.S. threatened to slap sanctions on countries that don’t cut oil imports from Iran to “zero” by Nov. 4, part of the Trump administration’s push to further isolate Tehran both politically and economically, a senior U.S. State Department official said.

Buyers of Iranian crude had expected the U.S. would allow them time to reduce their oil imports over a much longer period, by issuing sanctions waivers for nations that made significant efforts to cut their purchases. That expectation was partly based on previous comments from top Trump officials, as well as the Obama administration’s earlier effort to wean the world off Iranian oil over several years.

But the senior State Department official said on Tuesday that President

Donald Trump’s

administration doesn’t plan to issue any waivers and would instead be asking other Middle Eastern crude exporters over the coming days to ensure oil supply to global markets.

The tactic is likely to further escalate geopolitical tensions between the U.S. and other nations as the Trump administration pits itself against its allies and other major economies over its nearly unilateral policy toward Iran and a host of challenges on trade.

Oil prices immediately jumped on the news, with West Texas Intermediate crude for August delivery ending 3.6% higher at $70.53 a barrel on the New York Mercantile Exchange. That marked the highest level since May, when the White House said it would pull out of the 2015 Iran nuclear accord—which the U.S. and other major countries reached with Tehran to curb its nuclear development—and would reimpose crushing sanctions on one of the world’s largest oil suppliers.

“We will certainly be requesting that their oil imports go to zero without question by Nov. 4th,” the official said of other countries’ purchases of Iranian oil. While the administration won’t rule out issuing sanctions waivers in the , the official said, its predisposition is: “No, we’re not going to do waivers.”

“We view this as one of our top national-security priorities,” the official said.

The move is likely designed to spur greater global compliance with U.S. sanctions. Most major importers of Iranian crude have balked at Washington’s new economic offensive against Tehran.

Two weeks ago, Andrew Peek, deputy assistant secretary of State for Iran and Iraq, said the U.S. was prepared to issue waivers if countries made major reductions in Iran oil imports. “It needs to be significant but will probably vary from country to country,” he said then.

Top administration officials from the State and Treasury departments have jetted around the world in recent days to persuade other countries to cut use of Iranian crude and warn them that any companies, banks or traders that handle Iranian oil face U.S. penalties, including the risk of being frozen out of U.S. markets. The senior State Department official said allies in Europe and Asia already had been warned, and trips to China, India and Turkey were in the works.

Governments are being cautioned that Secretary of State

Mike Pompeo

and the White House “aren’t kidding about this,” the official said. China and India, two of the largest buyers of Iranian crude, “will be subject to the same sanctions that everybody else is if they engage in those sectors of the economy.”

The Trump administration, in pulling out of the nuclear accord and reimposing economywide sanctions on Iran that hit not just the oil sector, but also the banking, shipping, trade and insurance markets, said it wants to force Tehran to radically overhaul its nuclear and military posture in the region.

Banks’ reluctance to deal with Iran is already taking its toll on Tehran’s oil . Exports have fallen to an average of 2.2 million barrels a day this month, compared with 2.7 million barrels a day in May, according to data from London-based consulting firm Vortexa. Earlier this month,

Indian Oil
Corp.

, the country’s largest refiner, said it was considering cutting Iran crude imports after a decision by government-run

State Bank of India

to stop dealing with Tehran.

European refiners, which buy around a third of Iran’s oil exports, are also dropping out. Italy’s Saras is considering no longer buying Iranian oil because its banks don’t want to finance such trades even before the Nov. 4 deadline, according to company officials. The company said last week it had made no final decision. European refiners say they have already started buying more oil from Saudi Arabia, Russia and Iraq to make up for upcoming reductions in Iranian oil.

Meanwhile, economic woes have triggered a new round of protests in Iran, posing a challenge to President

Hassan Rouhani’s

government as it struggles to tackle persistent double-digit inflation and unemployment. Economic concerns in the country have been aggravated by the Trump administration’s exit from the 2015 nuclear accord.

Mr. Pompeo warned last month that Tehran would face “the strongest sanctions in history” if it didn’t yield to U.S. demands that it temper its nuclear and regional ambitions. He also suggested the Iranian public could take matters into its own hands.

The administration’s more aggressive stance on sanctions could bolster its leverage over Tehran, but it also complicates the White House’s other diplomatic and political priorities.

The move puts particular pressure on major trans-Atlantic allies that import hefty amounts of crude from Iran at a time when Mr. Trump is ratcheting up tensions with European nations over trade and seeking their support for his North Korea pressure campaign and other foreign-policy goals.

European officials said in recent weeks they expected oil imports would have to start gradually falling after the November deadline, giving them time to explore how to keep Iran in the nuclear deal and prevent it from resuming its nuclear activities.

Tuesday’s announcement could deflate those hopes. “This is really unhelpful and part of an escalation plan. We strongly disagree with this plan,” a senior European diplomat said.

Many in Europe had been hoping the administration might continue the Obama-era practice of giving sanction waivers for 20% reductions in imports.

Another senior European official cautioned that the U.S. policy may turn out to be more bark than bite, particularly as Washington will likely struggle to persuade other countries to accede to their demands on such a sensitive issue as energy imports. “They will not succeed,” the person said.

Separately, European officials have said they would try to maintain banking channels to ensure continued trade and investment, including energy imports, though many analysts question whether they will be able to do so.

In Asia, the U.S. is relying on China to help it keep pressure on North Korea by cutting the financial and economic ties vital to Pyongyang. Some analysts say China’s government will likely keep importing Iranian crude, banking on Washington’s desire for its cooperation on North Korea.

And as the administration’s Iran policy risks pushing up oil prices as the U.S. heads into elections this year, the White House could face its own domestic political backlash.

The more aggressive policy could push oil prices past $85 a barrel by the third quarter of the year, said

Frank Verrastro,

a top energy expert at the Center for Strategic and International Studies in Washington.

While oil from other suppliers can fit the refining specifications set for Iranian crude and Russia and other major producers have signaled they will increase output, other production squeezes could exacerbate the upward price pressure sanctions are putting on markets.

Mr. Verrastro said the International Energy Agency was too optimistic in its recent estimate that the world has around 3.5 million barrels a day of spare production capacity that could offset Iran’s 2.4 million in daily exports. That assumes nearly all of the spare capacity currently offline in Saudi Arabia and other major exporters could come back online and run smoothly, he said, noting that hurricanes, labor strikes, technical problems and political turmoil often tighten the spigot on global oil supplies.

“I would guess they reassess in November, when prices are rising heading into the election season,” Mr. Verrastro said.

Write to Ian Talley at ian.talley@wsj.com

Appeared in the June 27, 2018, print edition as ‘U.S. Warns Countries To Stop Iran Oil Imports.’

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