Countries are not being asked to end all buys of Iranian oil but they are being asked to substantially reduce their purchases—and most appear quite willing to do so.
Japanese Foreign Minister Koichiro Gemba was in Saudi Arabia this week and both Japanese and Saudi officials said the main topic was the availability of Saudi crude to replace some of Japan’s imports of Iranian crude.
Japan is in a uniquely difficult position. As a result of the tsunami last March and the rise of anti-nuclear feelings among the public, most Japanese nuclear power plants have been shuttered and Japan is now more dependent on fossil fuels to produce electricity.
The new sanctions law passed by the US Congress last month says the president may waive sanctions for countries that have “significantly” reduced their purchases from Iran. The word “significantly” is not defined in the law, leaving the president substantial wiggle room.
The White House has not defined “significant” either, but is waving the law over other countries to impress on them the need to move away from Iranian oil and other products as much as possible.
There was a major fear in Washington last year that other countries would balk angrily at the new sanctions law as gross interference and American bullying. But not a single country has thus far publicly denounced the law. It appears that the willingness to tolerate Iran has plummeted globally. Governments may privately resent the US law, but they have shown no inclination to suffer the consequences of sanctions. In the past, they might have anticipated many others joining them in a protest. But they don’t see that support now.
In past decades, Europe has been the main vocal opponent of US laws that try to tell Europe what to do. But Europe has been silent about the new sanctions law—probably because the EU is already clearly in compliance and faces no risk of being sanctioned.
In fact, EU officials have said the 27 EU states have agreed to stop buying all crude oil from Iran. It will not just cut purchases “significantly;” it will cut them totally.
The remaining question in the EU is how swiftly to go to zero. Many European firms have oil contracts with Iran; they are usually of 60 or 90 days in duration. But those firms still have to line up alternative suppliers. EU officials have said most member states say they can go to zero in less than half a year. Greece, however, wants its phaseout to last 12 months. The key point, however, is that even Greece is committed to stop all Iranian oil purchases.
Reuters said Britain, France, Germany and the Netherlands all insist on a maximum phaseout period of three months.
EU officials have been working the last six weeks to pinpoint alternatives sources of crude. They have not said where they will get the crude or how soon they can get it, but they indicate they have no doubts about their ability to replace all the oil they now get from Iran.
Most Iranian oil goes to Asia.
One Indian firm, BPCL, has not bought any oil from Iran since November since the Halkbank in Turkey, which has been processing sales for other Indian importers of Iranian oil, has refused to allow it to open an account. There is a growing concern in India that the Halkbank will soon back out of that arrangement and refuse to handle any Iranian business.
The Indians have renewed their proposal to pay for Iranian oil in rupees into an account in an Indian bank. Iran could then use the rupees to buy Indian products. No funds would have to go though the international banking system and confront US banking restrictions.
But Iran rejected that idea months ago because Iran buys very little from India so that its oil revenues would just pile up in rupees that would never be used. The Indians appear to suspect they may now have Iran over a barrel and think they may be able to force Iran to buy Indian products in large volume.
China, South Korea and Japan already have such local currency payment systems in operation. But Iran buys a lot from those three countries, so Iran dos not worry about oil payments piling up.
However, all these countries still face the threat of being shut out of the US banking system through sanctions.
Indian news reports said India will also seek a waiver from US sanctions. That in turn will require a “significant” cut in its Iranian oil purchases, regardless of whether it pays into a rupee account for any remaining buys.
South Korea actually increased its reliance on Iranian oil last year, raising its dependence from 8.3 percent in 2010 to 9.7 percent in 2011. The South Korean news agency Yonhap reported Korean officials as saying it would not be hard to cut back to the 2010 level, which they hoped would satisfy the United States. Political sources in Washington shook their heads and said that would not be enough.
Ironically, China has cut back Iranian oil purchases already, although that is not because of US sanctions but because of a dispute with Iran. In December, when the two countries were negotiating new oil contracts, China demanded that it be given 90 days in which to pay, up from the 60 days in previous contracts. Chinese officials said Iran refused. A Beijing oil trader told Reuters that China then halved it purchases of Iranian oil in January and subsequently extended the cutback through February. (Some in the industry have questioned the accuracy of this Reuters report, but Reuters has not backed off of it and China has not rebutted it.)
It sounded a bit like a game of chicken with China taking advantage of the pressure Iran is now under to demand better terms. That is exactly what the United States is hoping for, though it prays that buyers will go even further and demand price discounts to buy from Iran.
Italy at first had doubts about stopping all buys of Iranian oil. But its national oil company, ENI, said it would have no difficulty shifting to other suppliers. ENI said the only thing it was asking for was a clear exemption for about $2 billion worth of oil that Iran is consigning to ENI as payment for an oilfield development project that is now finished. The payment in oil is part of Iran’s standard “buyback” contract mechanism.
On Sunday, Mohsen Qamsari, the head of international affairs for the National Iranian Oil Co. (NIOC), tried to use that to leverage ENI into opposing sanctions. Qamsari was quoted by the state news agency as saying ENI “does not have any specific financial claim on the NIOC”—effectively a repudiation of its contract with ENI.
That tough talk did not survive even 24 hours. The next day Qamsari totally reversed himself and told the Mehr news agency, “Based on the buyback contracts, this amount [$2 billion] will be paid off to this Italian company.”
It seemed likely that Qamsari and his staff rethought the Sunday threat and realized that no firm would ever sign another buyback contract with Iran if it claimed a right to back out of contract payments at a moment of political difficulty. It was yet another example of an Iranian official shooting himself, and his country, in the foot.
The EU foreign ministers had been scheduled to finalize the sanctions program at a meeting January 30. But the EU has now scheduled an EU summit for that day. So the foreign ministers are expected to meet a week earlier on January 23 to vote on the Iran sanctions.
In Iran, government officials are talking about the sanctions out of both corners of their mouths. On the one hand, they trumpet the picture of the United States as a vicious opponent of the Islamic Republic, declaring that the new US sanctions are “economic warfare” against the people of Iran. On the other hand, they feel a need to reassure a nervous public and so they regularly declare that the sanctions are meaningless, ineffective and “laughable.”
