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Iran defiant as U.S. sanctions start without largest oil importers

Iran defiant as U.S. sanctions start without largest oil importers
Iranian President Hassan Rouhani responded to the new U.S. sanctions in a nationally televised address, saying, “We will continue to sell our oil ... to break sanctions.” He accused Washington of waging economic war against Iran. (EPA-EFE/REX)

The Trump administration slapped tough U.S. sanctions on Iran’s energy, banking and shipping industries Monday but granted waivers to the six largest importers of Iranian oil, leaving gaping holes in the White House effort to punish Tehran for what it considers regional terrorism.

Secretary of State Michael R. Pompeo said eight governments would be allowed to continue importing Iranian oil for the time being due to what he called “specific circumstances” and to ensure a stable global oil market. Most have scaled back imports and all are under pressure to find other suppliers.

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The countries granted waivers include China, India, South Korea, Turkey, Italy and Japan — Iran’s top six customers, responsible for more than 75% of Iran’s oil exports last year. Waivers also were granted to Greece and Taiwan.

The White House had demanded countries cease all imports of Iranian oil within six months or face punitive measures when President Trump withdrew from the Iran nuclear deal in May. Iran’s oil exports have fallen by about half since then to slightly more than 1 million barrels a day.

Trump acknowledged Monday that imposing blanket sanctions on some of the world’s largest economies and industrial powers would cause a “shock to the market,” even as he insisted the sanctions are “very tough.”

“I don’t want to drive the oil prices in the world up,” he told reporters at Joint Base Andrews before heading to Cleveland for an election eve rally. “So I’m not looking to be a great hero and bring it down to zero immediately.”

In Tehran, while citizens braced for more economic hardship, the Iranian government was defiant, branding the latest U.S. sanctions as illegal and unfair.

“We will continue to sell our oil ... to break sanctions,” President Hassan Rouhani said in a nationally televised address. He accused Washington of waging economic war against Iran.

“We are prepared to resist any pressure,” Rouhani said.

China imported an average of 718,000 barrels a day from Iran in the first five months of this year, accounting for about a third of Iran’s oil exports, according to Chinese government data.

India, Iran’s second largest customer, imported an average of 577,000 barrels a day this year, or about 27% of Tehran’s supply. India has announced it will end the imports this month.

Turkey gets most of its oil from Iran, nearly 7 million barrels in May, but has been weaning itself away and turning to Russia for supplies, according to the Energy Market Regulatory Authority, which monitors oil production and sales.

South Korea’s oil imports from Iran dropped to 6 million barrels in May, from a high of 18.5 million barrels in March last year.

More than 20 smaller importers have cut their imports of Iranian oil to zero, costing Tehran $2.5 billion in lost oil revenue since May, the administration said.

The White House said U.S. suppliers would expand production, and that Saudi Arabia would also boost production, to compensate for any shortfalls. U.S. crude oil traded 0.55% lower and the benchmark Brent crude oil slid 0.41% lower, within the range of normal trading.

Pompeo said the eight exemptions did not weaken the sanctions program, which he called an “unprecedented campaign of economic pressure.”

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“Each of those [eight] ... has already demonstrated significant reductions of the purchase of Iranian crude over the past six months,” Pompeo said. “We continue negotiations to get all of the nations to zero.”

He said sanctions imposed in May have taken a huge bite out of Iran’s already troubled economy. Inflation and unemployment have soared and the national currency has fallen sharply against the dollar. Rising prices and shortages of basic goods have spurred domestic protests.

In addition to oil exports, the latest sanctions target more than 700 individuals, companies, vessels and aircraft, including major banks and shipping companies.

Many of the targets were not placed under secondary sanctions, however, meaning other countries or foreign companies can do business with them without risking U.S. penalties.

That omission could be strategic, analysts said, giving the administration a stick for the future. Indeed, John Bolton,Trump’s national security advisor, said additional sanctions are likely.

“Iran, right now, is in the escape and evasion mode,” Bolton said on Fox Business Network. “They're going to try and get around the sanctions. We're determined to prevent that.”

Dozens of international auto, pharmaceutical and other companies pulled out of Iran, or canceled plans to set up business there, ahead of Monday’s sanctions. In addition, the Belgium-based Swift network for making international payments has confirmed it will cut off links with some Iranian banks, isolating Iran from the international financial system.

Iran’s critics applauded the administration’s move.

“The implementation of a maximum-pressure, full economic blockade on Iran is the only way to force the regime to change its malignant behavior,” said a statement from United Against Nuclear Iran, an advocacy group chaired by Joseph Lieberman, the former senator from Connecticut.

Iran argues that the sanctions violate a unanimous United Nations Security Council resolution that endorsed the 2015 nuclear accord. The deal lifted international economic sanctions on Iran in exchange for the dismantling or destroying of its nuclear infrastructure, and intense monitoring and inspections going forward.

Some analysts said the sanctions may not carry much weight if Iran’s customers can keep buying oil.

“If China does not go along, this will not be very effective,” said Thomas Countryman, an assistant secretary of State for nonproliferation in the Obama administration. He said China joined most of the rest of the world in sanctioning Iran before 2015, although Beijing did not acknowledge that publicly.

Adam M. Smith, who worked on sanctions at the Treasury Department and the White House in the Obama administration, said the waivers made sense from a practical point of view. The Trump administration is “trying to foment support for a purely unilateral structure and not make angry those who they want to be on their side,” he said.

Few outside analysts expect the sanctions will achieve the administration’s stated goal of convincing Tehran to abandon its “malign behavior,” including its production of ballistic missiles and support for militant groups in Lebanon, Yemen, Iraq and elsewhere in the Middle East.

Pompeo also announced exemptions for ongoing projects at three of Iran’s nuclear sites that “impede Iran’s ability to reconstitute its weapons program.”

The projects at the Arak heavy-water reactor, the Bushehr commercial nuclear reactor, and at the Fordow uranium enrichment facility, a key feature of the Obama-era nuclear disarmament deal that Trump has abandoned, will be allowed to continue under strict international supervision, Pompeo said.

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