In late June, the State Department indicated that the Trump administration intends to compel buyers from around the globe to cut imports of Iranian crude to zero by November 4. The push is a critical piece of the puzzle for Washington when it comes to ensuring that the decision to pull the U.S. out of the nuclear deal actually works as intended when it comes to putting financial pressure on Tehran.
Within weeks, there were signs the Japanese and the South Koreans had stopped lifting Iranian crude in lieu of waivers from the U.S. By mid-July, America’s European allies were feeling the heat from Mike Pompeo and Steve Mnuchin who, according to letters described to the media by sources close to finance and foreign ministers of the U.K., France and Germany, summarily rejected requests for waivers from secondary sanctions imposed on countries who import Iranian oil.
The details of the communication between Pompeo and Mnuchin, on the U.S. side, and the European powers on the other, came just hours after reports that Trump is actively considering tapping the Strategic Petroleum Reserve in order to drive down prices at the pump ahead of the November midterms.
It goes without saying that the hardline stance on Iran is working at cross purposes with the administration’s attempts to drive oil prices lower. Although crude has receded from recent highs on jitters about the extent to which trade tensions could entail demand destruction in the commodities complex (among other factors), all signs point to a market dynamic wherein increased Saudi production will be unable to offset the effect of lost Iranian barrels.
Complicating Trump’s efforts to compel other nations to get on board with the idea of presenting a unified front when it comes to rejecting Iranian crude is the fact that Trump is at odds on trade with literally everyone involved, including and especially China, which has variously declined to support unilateral sanctions and is Iran’s top customer.
Given that, it comes as no surprise that U.S. officials were unsuccessful in convincing the Chinese to cut Iranian oil imports, according to officials who spoke to Bloomberg. Apparently, Beijing has agreed not to increase purchases from Iran, but that’s about it.
To be clear, assurances that China won’t move to actively subvert U.S. efforts by simply taking whatever Iranian crude other countries aren’t “allowed” to take is at least somewhat reassuring for the Trump administration. As Bloomberg goes on to note, China increased monthly oil imports from Iran by 26% last month.
(Bloomberg)
Analysts have always been skeptical about how effective renewed sanctions would be.
“In 2012-13, Iran opened up accounts in local currencies in buying countries that it then used to finance imports”, Barclays wrote ahead of Trump’s decision to abandon the nuclear deal. “If China, India, Japan, and South Korea do not impose sanctions on the Central Bank of Iran, these countries would be unlikely to stop taking Iranian oil and could serve as an offset to European buyers that would wait to see how the sanctions regime looks”, the bank’s Michael Cohen (not that Michael Cohen) continued.
“The EU accounts for 25% of Iran’s crude exports but we believe the key for the global oil market is whether these flows will be curtailed rather than simply redirected to Asia”, Goldman wrote last year, when tensions between Washington and Tehran were flaring anew.
Iranian Foreign Minister Mohammad Javad Zarif underscored the necessity of maintaining a close and cordial relationship with China on Friday after meeting with China’s Foreign Minister Wang Yi in Singapore at the the Asean conference.
“Now it’s the same JCPOA , particularly after some people left,†Zarif said, adding that “we need to ensure the JCPOA is not destroyed by the very negative illegal actions of one party.” And by “one party” he means Donald Trump, who late last month essentially threatened to wipe Iran off the face of the planet in an absurd all-caps tweet addressed (literally – he actually addressed it) to Hassan Rouhani.
Zarif has been known to send a tweet or two himself. On Thursday, he trolled the Trump administration with this:
US Navy can’t seem to find its way around our waters. Perhaps because it hasn’t figured out its name: Persian Gulf, as it's been called for 2,000 yrs longer than US has existed. Or maybe it doesn't know what it's doing in our backyard, 7,000 miles from home. pic.twitter.com/g05yqSTisi
— Javad Zarif (@JZarif) August 3, 2018
Earlier Thursday, Zarif called U.S. sanctions on Turkey illegal. “[America’s] unlawful sanctions against two Turkish ministers – from an allied country – illustrates not just US administration’s policy of pressure and extortion in lieu of statecraft, but that its addiction to sanctions knows no bounds”, he said.
China represents something of a “break glass in case of emergency” option for Iran when it comes to selling its oil amid a harsh U.S. sanctions regime. Thanks to Trump’s increasingly contentious relationship with Beijing on trade, the Chinese are likely to be more receptive to helping Tehran than they might otherwise be, although if today’s reports are accurate, it does appear that the Chinese are going to avoid aggressively ramping up their buying in the near-term, presumably to avoid risking a situation where they aggravate Trump even further as trade negotiations are ongoing.
