Iran, oil buyers ready for return of US sanctions
By Benoit Faucon*
The Trump administration says it expects Iran’s oil buyers to begin winding down their purchases Tuesday in response to sanctions being reimposed by the US. Some are seeking alternatives, but countries including China, India and France are considering creative measures to keep importing Iranian crude.
Starting this week US sanctions against Tehran on sectors like automotive and aircraft are set to return following President Donald Trump’s decision in May to pull out of the nuclear agreement with Iran.
Oil companies will have until November 4 to adjust to the returning US ban on buying Iranian oil. “The three-month wind-down period is starting,” Dario Scaffardi, chief executive of Italian refiner Saras SpA — a buyer of Iranian oil — told analysts last week.
The threat of dwindling oil sales is forcing Tehran and its oil buyers to react. Oil is a main export, accounting for nearly a fifth of Iran’s gross domestic product.
In recent months, US officials have said they expect Iran’s oil exports to either disappear completely or to decline significantly. The Treasury Department has carried roadshows with State Department and other government counterparts over the last 90 days explaining what sanctions will snapback when all the wind-down periods end in November, a US official said.
Nations that regularly do business with Iran are in a difficult position. “We have informed our oil customers that we will only buy their commodities if they buy our crude,” Asadollah Qarekhani, spokesman for the Iranian Parliament’s Energy Commission told Iranian state-media last month.
The European Union, China and India have said they won’t enforce sanctions — unlike their response to restrictions against Iran oil in 2012.
Last month, Iran’s Vice President Es’haq Jahangiri said the country would privatize the sale of its crude, a workaround that could be effective by putting the onus on private businessmen to sell the commodity.
Iran employed the method to market its oil products and petrochemicals during previous sanctions with the help of small Chinese and Russia banks and intermediaries, according to Iranian traders and transaction documents reviewed by The Wall Street Journal in 2015.
Tehran also has begun to increase reliance on the privately-owned National Iranian Tanker Co., to replace foreign tankers in deliveries to India, according to data from shipping website Fleetmon.com, which gives access to data on tanker movements.
Most importantly, Iran plans to use a barter system — which avoids sanctionable transfers to the nation — through which oil payments are deposited into accounts in oil-importing countries and used by Tehran to buy goods.
Some European Union’s nations may consider the process, according to a European official involved in the contingency planning. Countries like China, India and more recently, Russia have used it successfully to buy Iran’s crude.
In a joint statement on Monday, the EU, France, the UK and Germany said they are committed to work on the continuation of Iran’s export of oil and gas.
Tehran also has started shipping to small buyers in Latin America, including a delivery to Chile over this past weekend, according to a European sanctions official and tracking data.
French, German and British governments are considering the use of their national banks to activate accounts for the Iranian central bank, which could receive oil payments, according to European officials.
However, “the United States could still sanction the oil companies if they pay the central banks for the oil”, said Richard Nephew, who is now an adjunct professor at Columbia University’s Center on Global Energy Policy.
Among other options, the French government is considering taking charge of the shipping and storage required to import Iran oil to replace private companies, the European official said.
France could also buy Iranian oil from countries like China, India or Russia — possibility refined for the latter — if they have obtained exemptions, the official said.
The impact of upcoming sanctions has been more mixed in Asia, where many refiners are state-owned and banks are often exposed to the US financial system.
South Korea didn’t purchase oil from Iran last month for the first time in three years, according to Kpler. Meanwhile, Indian imports rose by 118,000 barrels a day.
China, generally the largest buyer of Iranian oil, is gearing up to take more, said a senior US official said.
The Asian powerhouse is engaged in a dispute over trade tariffs with the US and uses a state-run bank with no American connection, giving it leverage in fighting the sanctions.
* Benoit Faucon is a senior reporter of the Wall Street Journal covering OPEC and the oil industries of Iran, Libya, Nigeria and Algeria.
This article originally appeared on wsj.com.