Washington, 25 November (Argus) — The world powers' nuclear agreement with Iran appears to remove Washington's ability to sanction banks in countries that continue to buy Tehran's crude.
Under the interim, six month agreement, the US and its negotiating partners – the UK, France, Russia, China and Germany - have committed to “pause efforts to further reduce Iran's crude oil sales” so as to enable Tehran's existing customers “to purchase their current amounts of crude oil.”
The White House said the 24 November “joint plan of action” means that Iranian oil exports would remain at about 1mn b/d, down from about 2.5mn b/d in early 2012.
But a provision Congress attached to a Defense Department authorization bill in 2011 directs the US administration to sanction banks in countries that continue to buy Iranian oil unless those host countries cut their imports “significantly.”
That provision “at this point has been waived or suspended” since the purchases “are likely to remain constant and not decline as mandated by Congress,” said Ray Takeyh, a senior fellow for Middle East studies at the Council on Foreign Relations and a former State Department senior adviser on Iran.
The State Department declined to comment.
The US has identified six countries known to still be buying Iranian oil - China, India, Japan, South Korea, Turkey and Taiwan.
While the removal of the threat to their banks may encourage Iran's customers to increase their purchases, the real world effects may be less dramatic. The State Department repeatedly has granted the banks in these countries exemptions from the sanctions, insisting their host nations had cooperated with efforts to isolate Iran.
The US House of Representatives has attempted to take the banking sanctions one step further, voting overwhelmingly in July to force countries importing Iranian oil to reduce their aggregate purchases by another 1mn b/d – essentially eliminating Tehran's exports - within 15 months. And many US lawmakers want to increase rather than roll back the sanctions pressure on Iran.
President Barack Obama has warned lawmakers not to try to impose new sanctions over the next six months. “Doing so would derail this promising first step, alienate us from our allies and risk unraveling the coalition that enabled our sanctions to be enforced in the first place,” Obama said.
While negotiators were still trying to hammer out a deal, Senate majority leader Harry Reid (D-Nevada) said he would support moving forward with a new sanctions bill in December, after lawmakers return from their Thanksgiving Day recess. And a bipartisan group of 14 senators issued a statement vowing to push ahead with sanction as soon as possible.
Today, Reid, in a radio interview, said when lawmakers return to Washington “we will take a look at this to see if need stronger sanctions.”
French bank Societe Generale expects the interim agreement will push down crude prices by about $5/bl in the first couple of days. But it does not expect the price drop to persist because it will not affect fundamentals.
“The core sanctions on oil, banking and finance have not been touched,” Societe Generale said in a report.
US officials say they are eager to begin the negotiations toward a more comprehensive agreement. No timetable for future talks has been released.
Obama and US secretary of state John Kerry have emphasized the difficulties inherent in reaching a comprehensive accord. Washington think-tank Center for a New American Security senior fellow Elizabeth Rosenberg noted that while the agreement represents “a very good initial step” for the US and its negotiating partners, “the difficult work on sanctions is yet to come.”
Societe Generale pegs the odds of the parties reaching a comprehensive agreement at greater than 50pc. If that were to occur, oil and banking restrictions imposed on Iran likely would be lifted, and Iran would need three to nine months to recover about 1mn b/d of lost production.