The Trump administration is taking an even harder line on Iranian oil exports than the Obama administration did prior to the nuclear deal, resulting in what amounts to an extraordinary high stakes game of chicken over the next several months. In the longer term, the U.S.’s application of unilateral sanctions risks states and coalitions developing alternative methods to purchase crude oil outside of linkages to the U.S. banking system.
The Trump administration has outlined a hardline position regarding sanctions on Iran. Senior members of the administration, including the Secretary of State, have gone on the record to indicate Washington’s expectation that all countries are to cut their imports of Iranian oil to zero by November 4 or face U.S. secondary sanctions. While the administration first indicated this on May 21 in a speech by Secretary of State Pompeo, officials this week indicated that the United States was not planning on issuing any waivers, something it had done in the years prior to the Iran nuclear deal being signed. Now that the United States has pulled out of the nuclear deal, the Trump administration is taking an even harder line than the Obama administration had prior to the agreement, saying that significant U.S. secondary sanctions would apply to companies and countries that imported Iranian oil November 4. This includes key U.S allies such as a the Republic of Korea, Italy, Japan, and Turkey as well as strategic partners such as India, and other important states such as China. For Washington on the one hand, and both allies and key partners on the other, this amounts to an extraordinarily high stakes game of chicken over the next several months. In the longer term, applying – and carrying through with – this type of sanction application could lead to states and coalitions developing long-term methods to purchase oil and carry out international commerce outside of linkages to the U.S. banking system.
The U.S. desire to reduce Iranian oil exports to zero, and its related threat to apply secondary sanctions (and no waivers) to states and companies who inhibit achievement of that goal grows out of the Trump administration’s view that Iran is a major security threat that needs to be countered across the board. The administration’s withdrawal from the Iranian nuclear accord was coupled with talks with allied and partners about increasing economic, political, and military pressure on Iran. The administration’s goal through this pressure, is not just a nuclear agreement that is better according to Washington’s standards but also significant changes in behavior of the Iranian regime on missile development, military involvement in Yemen and Syria, and support for designated terrorist groups such as Hezbollah and Hamas. To achieve that broad and deep set of goals, and have the Iranian regime engage in that degree of behavior change, the pressure will indeed have to be extraordinary, long-lasting, and allow for few exceptions.
Absent any other interaction with allies and partners, Washington has little incentive to issue waivers or indicate that is is open to waivers until immediately before the deadline it has set. The longer the threat of secondary sanctions and no waivers exists, the more likely that companies will decide on their own not to take the risk and will curtail business with Iran. Dangling waivers in private to countries could incentivize them to sign up for a more restrictive, new nuclear (plus other areas) deal to present to Tehran. However, it is not at all clear that this is Washington’s preference given that a more restrictive deal is unlikely to be accepted by Tehran absent an actual lengthy period of sanctions imposition and enforcement by most of its major trading partners. Washington may ease on the question of waivers if it needs to negotiate with key allies and diplomatic partners on other issues such as bilateral trade deals or solidarity in any possible deal with North Korea. Even then, though, the Trump administration, with a large bipartisan backing in Congress, seems to be most hard on Iran of all foreign and security policy issues.