and four minor buyers of Iranian crude open to American sanctions.
In February, the State Department announced exemptions were being given to Japan and all 10 EU states that bought Iranian crude last year.
On Monday, exemptions were granted additionally to: India, South Korea, Turkey, South Africa, Taiwan, Malaysia and Sri Lanka.
The remaining countries that now face sanctions as of June 28 are China, Indonesia, Pakistan, the Philippines and Singapore.
These are the 23 countries that were buying Iranian crude when the new US sanctions legislation was signed into law New Year’s Eve.
See page 6 for the latest developments regarding sanctions.
The exemptions now granted are not permanent; they are good only for six months. So a country cannot get an exemption and then just start buying whole tanker loads of Iranian crude.
The sanctions will not drop like a ton of bricks on countries June 28, however. A US official explained last week that it would take time for Washington to gather the concrete evidence needed to impose punitive sanctions.
That sounded like a ploy to increase pressure on non-cooperating states to bring them in line. The United States has been gathering considerable detail on oil trading deals for six months and has the evidence to exempt 18 countries so it likely has all the evidence it needs to sanction the others. But it would rather not sanction anyone and look like a bully.
Some analysts speculated that Washington would have to sanction at least one country to show that it is serious. Much of the betting money falls on Pakistan as the likely victim. China is too big and important to sanction, goes this logic, while Indonesia, the Philippines and Singapore are close friends the Obama Administration would not wish to antagonize.
Pakistan, on the other hand, has become a huge pain in the neck. Sanctions on Pakistan could actually please Obama’s domestic constituency and be a political benefit at election time while also showing the world Obama is serious about sanctions.
The law allows sanctions to be waived for countries that make “significant” reductions in their purchases of Iranian crude. The law did not define “significant” and the Obama Administration always avoided defining it so as to maintain maximum pressure.
Secretary of State Hillary Clinton announced the new exemptions Monday, but did not say how they were determined.
The new sanctions law does not impose sanctions on countries or on oil buyers. It targets foreign financial institutions that do business with Iran’s Central Bank by barring them from holding correspondent accounts in the US banks. Its impact is to shut any foreign bank that does business with Iran out of the US financial system, an extremely stiff penalty for any large bank.
The sanctions apply to foreign central banks for transactions involving the purchase of Iranian crude or petroleum products.
The reaction from Tehran approached the amusing. The Fars news agency reported the announcement this way: “The United States was forced to exempt seven major importers of Iranian crude after they announced opposition to the White House extraterritorial laws, saying that they could not halt imports from Iran due to their vital security needs.”
But the government that was most vocal about objecting to the sanctions law was China—and Washington was not “forced” to exempt it.
Many wanted to know why the Philippines was not exempted. A close US ally, it never imported much Iranian crude and has said it is looking to eliminate Iranian crude entirely. Did it not receive an exemption because American diplomats judged that it was just full of talk and not actually doing anything?
The sanctions could hurt the Philippines badly since it so closely linked to the US economy. The potential damage could not possibly be worth the pittance that it bought last year in Iranian crude.
Singapore was another surprise. It imports very little crude from Iran, given that two of its three refineries are partly owned by American firms and have never used any Iranian oil. Singapore is an international financial center and the threat of being cut off from the US financial markets is an immense threat.
However, a lot of Iranian crude moves through Singapore. There is a suspicion that businesses may bring Iranian crude to the port of Singapore, blend it with others crudes to hide its origin and then sell the resulting blend onward as Libyan or Omani oil. The United States has been pressing Singapore to police that practice, and the absence of an exemption may be to exert more pressure on Singapore.
China has a political desire to stay independent of US pressures. But even China isn’t interested in facing new US sanctions. A Chinese official told Reuters this week that Sinopec, a major refiner, had been offered Iranian crude at discounted prices, but that the Chinese government turned down the offer, explaining that ties with the United States are far more important than cut-rate Iranian oil.
In Beijing, a Foreign Ministry spokesman said Tuesday that China believes its oil purchases from Iran are completely legal. But that misses the whole point of sanctions. The United States doesn’t say that oil purchases from Iran are illegal, except for Americans. Washington doesn’t threaten to jail foreigners who buy Iranian oil. Essentially, the sanctions law offers non-Americans a simple choice: Either do business with Iran or do business with the United States—take your pick. The political calculation in Washington is that this is a simple choice for almost everyone due to the US role in the financial world.
There are other calculations that foreign buyers of Iranian oil must face. Reading Iran’s rhetoric about stopping oil exports if America attacks it or even just threatens it can lead a foreign buyer to look on Iran as an insecure supplier. Why would a buyer want to lock itself into heavy dependence on Iranian oil if Iranian politicians might shut off the tap at any moment?
There is also the fear that the last buyer to dump Iran will have to pay a premium to get alternative supplies. Buyers are seeing many refiners locking up contracts now for non-Iranian oil and fear being left out.
The sanctions don’t actually fall on the refiners; they fall on the refiners’ bankers. It is no pain for the banks if the refiners must buy somewhere else. It is a great pain for the banks if they are shut out of the American financial network. As a result, banks are assumed to be telling refiners they simply will do no more business with the refiners if they do business with Iran.
It is also assumed that some refiners will be quite willing to work through obscure foreign banks and conduct all sorts of tricky financial machinations in order to get Iranian crude—but only if there is a payoff for the refiner in terms of serious price deductions offered by Iran.
The bottom line is that the United States is not trying to stop all Iranian olil sales. That might cause serious economic problems globally. It might also prompt Iran to lash out and do something violent. The United States is seeking to put a serious crimp in Iranian oil sales, enough to make it decide to alter its nuclear policy.
