The United States will find it necessary to grant a limited number of waivers to sanctions it will impose on Iranian oil customers, but in exchange, it will demand that the countries substantially cut those imports. The United States will continue to pursue its goal of reducing Iran's oil exports to zero, and it will demand further reductions when the six-month waivers expire in order to renew them. Even the Iranian customers who gain waivers will find it difficult to set up mechanisms to pay for the oil or to arrange shipping and insurance to transport it. India, South Korea, Japan and Turkey are the countries most likely to receive waivers, while others, including China, will continue to try to secure them.
After months of negotiations and just days before U.S. sanctions imposed on importers of Iranian oil kick in, the United States has apparently agreed to give waivers to two of Iran's biggest oil customers, sparing them from the penalties. Bloomberg News reported Nov. 1 that India and South Korea, the largest importers of Iran's oil behind China, have arranged deals for the exemptions, while noting that the details of those broad agreements may not be completed until after sanctions start on Nov. 5.
Japan and Turkey have also been trying to secure waivers, but no announcement on the status of those negotiations has been made. In a sign that further waivers could be coming, U.S. national security adviser John Bolton acknowledged that while the United States would like to choke off all Iranian oil exports, some countries were finding it difficult to find alternative suppliers, and Washington would like to spare U.S. allies the economic damage of sanctions.
The Big Picture
The United States is pursuing a maximum pressure campaign against Iran that includes sanctions designed to reduce its oil exports to as close to zero as realistically possible. But it is learning that many countries are having trouble finding alternative suppliers. And with sanctions targeting any country importing Iranian oil due to start on Nov. 5, the United States apparently has begun awarding waivers that would exempt some countries.
Likely South Korean and Indian Import Reductions
After President Donald Trump decided to pull the United States out of the Joint Comprehensive Plan of Action (JCPOA), the multinational deal under which Iran agreed to suspend its nuclear program, his administration announced that it would reinstate economic sanctions against Iran, including those aimed at its oil exports. Countries seeking waivers — in a process similar to that under former President Barack Obama — are expected to agree to substantially reduce their Iranian oil imports. Under Obama, those cuts, measured every six months, amounted to about 18 percent, but the Trump administration has set a much higher bar for waivers.
According to details leaked from waivers talks, India has agreed to reduce Iranian oil imports by about 40 percent below planned levels to about 1.25 million metric tons per month, or about 290,000 barrels per day. In its plan for the 2018-19 fiscal year, set before the United States announced its JCPOA withdrawal, India was to import 25 million metric tons of Iranian oil, or about 490,000 bpd. During the summer, however, Iranian oil sales to India averaged much higher, topping out at a record 768,000 bpd during July.
No details have been released on the waiver agreement reportedly made by South Korea, Iran's third-largest oil customer before Trump announced its JCPOA pullout in May. Through April, South Korea had imported an average of 300,000 bpd of Iranian oil, but in the months since Trump's decision, it tapered those purchases in anticipation of the sanctions. To gain the waiver, it likely agreed to a larger cut of imports from previous levels.
What About Everyone Else?
So far, it is not clear whether Iran's most important oil customer, China, is even talking to the United States about gaining a sanctions waiver. But based on the levels of Indian import cuts, China, which imports about 700,000 bpd from Iran, could be asked to trim its imports below 500,000 bpd. Beijing has reportedly instructed its two largest refiners, Sinopec and China National Petroleum Corp., not to buy Iranian oil for now as it decides how to deal with U.S. sanctions policy. Turkey, Iran's fourth-largest customer, has also been trying to secure a waiver, although its imports from Iran generally fall under 200,000 bpd. Ankara hopes that the reduction in tensions after the release of imprisoned U.S. evangelical pastor Andrew Brunson from a Turkish prison could help its case in seeking the waiver.
There's Always a Catch
While the United States may be on the verge of issuing a few waivers, it will keep up its pressure on the oil customers that receive them. The waivers, which typically must be renewed every six months, will only be granted to countries that continue to meet U.S. expectations by buying less and less Iranian oil.
Moreover, while the waivers will allow continued imports of Iranian oil, they will not make it easier for customers to pay for it. Another set of U.S. sanctions targets the international payment system that allows customers to process transactions with Iran and will make it more difficult to arrange transportation and insurance for oil shipments. New Delhi has assured the United States that the barter arrangement that it has been trying to set up will include safeguards to prevent Indian purchases of Iranian oil from funding terrorism. That system would keep Iranian oil "revenue" in special overseas accounts that will prevent Iran from exchanging it for anything but Indian exports.
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