Shortly after U.S. President Donald Trump announced in May he would reimpose sanctions on Iran, the State Department began telling countries around the world the clock was ticking for them to cut oil purchases from the Islamic Republic to zero.
The strategy is meant to cripple Iran’s oil-dependent economy and force Tehran to quash not only its nuclear ambitions, but this time, its ballistic missile program and its influence in Syria.
With just days to go before renewed sanctions take effect Nov. 5, the reality is setting in: three of Iran’s top five customers – India, China, and Turkey – are resisting Washington’s call to end purchases outright, arguing there are not sufficient supplies worldwide to replace them, according to sources familiar with the matter.
That pressure, along with worries of a damaging oil price spike, is putting the Trump administration’s hard line to the test and raising the possibility of bilateral deals to allow some buying to continue, according to the sources.
The tension has split the administration into two camps, one led by National Security Adviser John Bolton, who wants the toughest possible approach, and another by State Department officials keen to balance sanctions against preventing an oil price spike that could damage the U.S. and its allies, according to a source briefed by administration officials on the matter.
The global price of oil LCOc1 peaked just below $87 a barrel earlier this month, before easing back to their current level around $77 a barrel on Monday. Because of the concern over oil prices, the source said, the administration is considering limited waivers for some Iranian customers until Russia and Saudi Arabia add additional supply next year, while limiting what Tehran can do with the proceeds in the meantime.
Revenues from sales could be escrowed for use by Tehran exclusively for humanitarian purposes, the source, who asked not to be named, said – a mechanism more stringent than a similar one imposed on Iran oil purchases during the last round of sanctions under U.S. President Barack Obama.
“If you’re the administration, you’d like to ensure you don’t have a spike in the price. So, you are better off from mid-2019 onwards to aggressively enforce the barrels side of reducing to zero and in the interim aggressively enforcing the revenue side,” the source said.
Such concessions could be problematic for the White House as it seeks stricter terms than under Obama, who along with European allies imposed sanctions that led to an agreement limiting Iran’s nuclear weapons development.
The State Department declined comment for this story, but the administration has confirmed Washington is considering waivers. U.S. Treasury Secretary Steven Mnuchin told Reuters that countries will first have to reduce purchases of Iran’s oil by more than the 20 percent level they did under the previous sanctions.
‘A BIT UNPREDICTABLE’
U.S. Treasury and State Department teams have traveled to more than two dozen countries since Trump pulled out of the nuclear deal on May 8, warning companies and countries of the dangers of doing business with Iran.
U.S. allies Japan and South Korea have already ceased importing Iran’s crude. But the situation is less clear among other, bigger buyers.
Brian Hook, the State Department’s special representative for Iran, and Frank Fannon, State’s top U.S. energy diplomat, most recently met with officials in India, Iran’s No. 2 buyer, in mid-October after a U.S. source said for the first time that the administration was actively considering waivers.
An Indian government source said India told the U.S. delegation that rising energy costs caused by a weak rupee and high oil prices meant zeroing out Iranian purchases was impossible until at least March.
“We have told this to the United States, as well as during Brian Hook’s visit,” the source said. “We cannot end oil imports from Iran at a time when alternatives are costly.”
A U.S. diplomat confirmed the discussions, saying limited waivers for India and other countries was possible.
India typically imports over 500,000 barrels per day (bpd) of Iranian oil, but has reduced that level in recent months, according to official data.
Discussions are also underway with Turkey, Iran’s fourth biggest crude buyer, even though Turkish President Tayyip Erdogan and Turkish ministers have openly criticized the sanctions.
An industry source in Turkey familiar with the talks told Reuters the country had cut Iranian imports in half already, and could get to zero, but would prefer to continue some purchases.
Obama’s administration granted a six-month waiver to Turkey, but the source said Turkey expected the Trump administration to impose tougher requirements for obtaining waivers that could potentially cover shorter periods.
“It could be for three months, or they may not get a waiver at all. It is all a bit unpredictable this time, as we understand a lot of things are up to Trump,” the source said.
The situation is least clear in China, Iran’s biggest customer, whose state-owned buyers are also seeking waivers. The country took in between 500,000 and 800,000 bpd from Iran in the past several months, a typical range.
Beijing’s signals to its refiners have been mixed, said the two sources. Last week, Reuters reported Sinopec Group and China National Petroleum Corp (CNPC), the country’s top state-owned refiners, have not placed orders for Iranian oil for November because of concerns about the sanctions.
Joe McMonigle, energy analyst at Hedgeye in Washington, said he expected the administration would have to accept some level of Iranian oil buying from China, given its consumption.
“Of all the countries, I don’t think they think China is going to zero,” he said.
U.S. State Department’s Fannon is scheduled to travel to Asia in coming days, with a speech in Singapore planned for Oct. 30; an official did not say if Fannon would use the trip to discuss Iran with China.
Theresa May Survives Confidence Vote
British Prime Minister Theresa May can rest easy after winning a vote of confidence on Wednesday night in the conservative party by 200 to 117.
After alighting from the vote last night unscathed, she is now immune from a leadership challenge for a year.
But rocky road still lies ahead as she tries to push through a vote in parliament to adopt her Brexit deal with the EU.
After the all important confidence vote on wednesday night, May was in Brussels again thursday morning to finetune the divorce deal she had struck for Britain.
May vowed, after vote results were announced on Wednesday night, that she will deliver the brexit “people voted for.”
She acknowledged the rather high number of her MPs who had voted against her. She promised to listen to, and address, their concerns.
The vote was triggered by 48 of her MPs who are angry at her Brexit policy. They say the deal betrays the demands of the 2016 referendum result.
IATA Forecasts Airlines Will Generate $3b More In 2019
The International Air Transport Association (IATA), which represents most global carriers, has forecast airlines will generate $3 billion more in total profits in 2019. The industry realized $32 billion this year. IATA says although airlines face increased taxes, they will carry more passengers next year that would boost industry profits.
Iata says airlines in North America are performing the best, but Africa remains the weakest region for aviation.
Net profits for airlines across Africa are expected to fall, for the fourth consecutive year next year by three-tenths of a percent.
Losses for carriers across Africa have widened as fuel costs have increased.
UN Urges Immediate Action On Climate Change
UN Secretary-General Antonio Guterres said on Wednesday at the ongoing 24th Conference of Parties (COP24) in Poland that it will “not only be immoral, but suicidal”, should the world body fail to agree on climate change action.
He challenged the more than 100 government leaders gathered in Katowice to find consensus and “finish the job”, noting the roadblocks continuing at the (COP24) climate change conference over how to implement the historic 2015 Paris Agreement.
Since Dec. 2, the conference has brought together thousands of climate action decision-makers, advocates and activists, with one key objective – to adopt global guidelines for the 197 parties of the 2015 Paris Agreement.
The 197 parties of the 2015 Paris Agreement committed to limiting global warming to less than 2 degrees Centigrade – and as close as possible to 1.5 degrees Centigrade – above pre-industrial levels.
As the conference nears its end, the UN chief acknowledged progress in the negotiations but said a lot still remains to be done.
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