Iranian Oil: No More Rules, but No Buyers
Since a second round of U.S. sanctions on Iran in November, most European countries have quit importing Iranian oil. In November, the U.S. government granted waivers to eight countries: Italy, Greece, Turkey, China, India, South Korea, Japan, and Taiwan.Iran’s Oil Minister Bijan Zanganeh is not pleased, however, as he lashed out at Greece and Italy for not buying oil even with waivers exempting them from sanctions.
“We have called them many times, but they do not return our calls,” Zanganeh said, according to Tehran-based Fars News Agencyoil
Both Italy and Greece have historically been solid trading partners with Iran; nearly 10-percent of its oil experts in 2017 went to Italy alone in data from the U.S. Energy Information Administration (EIA). However, during the 2012-2015 sanctions, both countries halted all imports much like they are doing now.
In the months leading up to the sanctions, oil exports fell by half, roughly 0.8 million barrels a day. After the sanctions, shipments were reduced to less than 1 million b/d, down from a high of 2.8 million at the beginning of 2018. Speaking about the sanctions with Iranian media outlets, Zanganeh compared this round of sanctions with the Iran-Iraq war in the 1980s, calling it harder to address.
Several factors might be preventing countries like Italy and Greece from importing from Iran. First, the waivers granted by Washington are only valid for six months, during which time countries are expected to reduce and ultimately stop their imports of oil. For European countries, waivers may have simply been used to keep Iran in the nuclear treaty.
By signaling a willingness to stand up to U.S. sanctions, the EU has worked to preserve the Joint Comprehensive Plan of Action (JCPOA) which was negotiated under President Obama. When Trump left the arrangement and reimposed sanctions, EU leaders scrambled to find a solution that would keep Iran economically-motivated to uphold its end of the deal, even proposing a new payments system.
Due to the sanctions, the SWIFT bank transfer system no longer works with Iranian banks. Therefore even with a waiver, business with Iran has become difficult to conduct as simply paying for the oil is now a logistical challenge.
In preparation for the sanctions, many oil companies scaled down their operations or cancelled them completely, knowing that they would have to choose between complying or risking their U.S. business. Countries that received waivers likely didn’t even know if those would come through, making it a gamble if they continued to rely on Iranian oil.
With the Trump administration focused on China, North Korea, and a southern border wall, it seems unlikely he will revisit the Iran situation in the near future. Therefore it is prudent for companies to prepare for another two years of sanctions and reduced Iranian trade.