- The US will reimpose oil sanctions against Iran on Monday.
- Eight countries are set to receive sanctions waivers.
- But they could still end up squeezing global oil supply.
In the wake of President Donald Trump’s withdrawal from the Iran nuclear deal earlier this year, Washington will reinstate more economic penalties against Tehran at midnight on Monday.
This is the second round of sanctions the administration has enacted since exiting the agreement, this time targeting energy and financial operations in the country. Those that buy oil from Iran after the cutoff could be penalised, through fines or exclusion from the US financial system.
What’s the point?
Oil is big business in Iran, with exports accounting for more than a tenth of gross domestic product in 2017. The sanctions are designed to exert financial pressure by cutting the Islamic Republic out of the global market. As Secretary of State Mike Pompeo put it, they aim to deprive “the regime of the revenues that it uses to spread death and destruction around the world.”
The Trump administration created a list of demands Iran would need to meet for sanctions to be lifted, including completely halting its nuclear and ballistic missile program and ending military engagement in Syria and Yemen. Other world powers have criticised the strategy, however, for undermining nonproliferation efforts.
In a research note, RBC analysts said the conditions “seem designed to produce a complete capitulation, if not a regime change, and require maximum economic pain in order to yield such a dramatic result.”
Which countries are included?
Most of them. Pompeo said Friday the administration will grant temporary waivers to eight countries that have “demonstrated significant reductions in crude oil and cooperation on many other fronts and have made important moves toward getting to zero crude oil importation.”
The countries won’t be named until Monday, but Bloomberg reports Japan, India, South Korea, and China are expected to be among recipients. Turkey, a major destination for Iranian crude, could also be included. Pompeo said the European Union, which has drafted its own plans to circumvent US sanctions, will not be.
The policy is in stark contrast to oil sanctions under the Obama administration, which granted waivers to 20 countries and expected those countries to reduce Iranian oil imports by a fifth every 180 days. The Trump administration has demanded at least two cut imports to zero “within weeks” and that the others reduce at a faster rate than before.
Will there be enough oil for the world?
In anticipation of sanctions, oil exports from Iran have already dropped by about a third since May. The Trump administration has said its ultimate goal is to cut OPEC’s third-largest producer out of the energy market, but analysts doubt that will happen.
Still, analysts estimate 1.3 million to 1.7 million Iranian barrels per day will roll off the market by the the first quarter of 2019. Meanwhile, there are supply disruptions in other key OPEC countries, including Venezuela and Angola.
Earlier this year, the International Energy Agency said sanctions could make maintaining global supply “very challenging” and would come at the expense of maintaining an adequate spare capacity cushion.
The Trump administration has looked to other Middle Eastern producers, most notably Saudi Arabia, to increase production. But some analysts are sceptical Riyadh has the spare capacity necessary to offset the losses.