Trump's sanctions against Iran were tested by oil-thirsty China (India)

WASHINGTON / SINGAPORE (Reuters) – Shortly after US President Donald Trump announced in May that he would impose sanctions on Iran, the State Department began to tell countries around the world that the time was rising for them to buy oil from the To reduce Islamic Republic to zero.

FILE PHOTO: A US Navy soldier on board the Mark VI Patrol Boat guards an oil tanker heading for the Bahrain harbor while a US / UK anti-mine action (MCMEX) took place on September 11, 2018 in the Arabian Sea. REUTERS / Hamad I Mohammed / file photo

The strategy is designed to paralyze the oil-dependent Iranian economy and force Tehran to repress not only its nuclear ambitions, but this time its ballistic missile program and its influence in Syria.

Only days before the new sanctions come into effect on November 5, reality sets in: three of Iran's top five Iranian customers – India, China, and Turkey – oppose Washington's call to end their purchases and argue that that there are not enough supplies worldwide to replace them, according to sources familiar with the matter.

This pressure and concern about a detrimental oil price increase puts the Trump government's strict line to the test and increases the possibility of bilateral deals to give buyers the opportunity to continue buying, sources said.

The tensions have split the administration into two camps, one headed by National Security Advisor John Bolton, who seeks the strictest possible approach, and another by State Department officials who want to sanction oil price hikes against the US and its governments According to a source that was informed by administrators about the matter.

The LCOc1 global oil price hit just under $ 87 a barrel earlier this month before easing back to its current level of $ 77 a barrel on Monday. With concerns over oil prices, the source contends, the government is considering allowing some Iranian customers limited exemptions until Russia and Saudi Arabia add additional supply next year. At the same time it limits what Tehran can do with the proceeds in the meantime.

The revenue from the sale could be used for Tehran solely for humanitarian purposes, said the source, who did not want to be named. A mechanism that is stricter than a similar mechanism imposed on Iran's oil purchases during US President Barack's recent sanctions round Obama

"If you are the administration, you want to make sure that you have no price spike. As a result, from mid-2019 you will be better off aggressively pushing the barrel side down to zero, and aggressively enforce the revenue side in the meantime, "the source said.

Such concessions could be problematic for the White House, as it seeks stricter conditions than under Obama, which together with European allies imposed sanctions that led to an agreement that restricted the development of nuclear weapons in Iran.

The State Department declined to comment on this story, but the government has confirmed that Washington is considering waivers. US Treasury Secretary Steven Mnuchin told Reuters that countries would first have to reduce Iranian oil purchases by more than the 20 percent mark they had achieved under the previous sanctions.

(Chart: Oil exports from Iran –


US Treasury and the Department of State had traveled to more than two dozen countries since Trump withdrew from the nuclear deal on May 8, warning companies and countries of the dangers of doing business with Iran.

The American allies Japan and South Korea have already stopped importing the Iranian crude oil. However, among other, larger buyers, the situation is less clear.

State Secretary for Iran's Special Representative Brian Hook and Frank Fannon, state's leading US energy diplomat, met with representatives of the Iranian buyer, Iran's second-largest buyer, in mid-October after a US source first said that the US Prime Minister said the administration actively considered waivers.

An Indian government source said that India told the US delegation that rising energy costs, caused by a weak rupee and high oil prices, made it impossible to stop Iranian purchases until at least March.

"We communicated this to the United States as well as during Brian Hook's visit," the source said. "We can not stop oil imports from Iran at a time when alternatives are costly."

A US diplomat confirmed the discussions and said limited exemptions for India and other countries are possible.

India usually imports more than 500,000 barrels (bpd) of Iranian oil per day, but has lowered this figure in recent months, according to official figures.

Talks are also ongoing with Turkey, Iran's fourth largest buyer of raw materials, although Turkish President Tayyip Erdogan and Turkish ministers have openly criticized the sanctions.

An industry source in Turkey, familiar with the talks, told Reuters that the country had already halved Iran's imports, possibly sinking to zero, but would prefer to continue some purchases.

Obama's government granted Turkey a six-month waiver, but the source said the Trump government would impose stricter requirements for deregulation, potentially covering shorter periods.

"It could take three months, or you will not get a waiver at all. This is all a bit unpredictable, as we know that many things depend on Trump, "the source said.

The least clear is the situation in China, Iran's largest customer, whose state buyers are also seeking a waiver. The country has received between 500,000 and 800,000 bpd from Iran in recent months, a typical range.

Beijing's signals to its tuners were mixed, the two sources said. Last week, Reuters reported on Sinopec Group and China National Petroleum Corp. (CNPC). [CNPC.UL], the country's leading state-owned refineries, did not place orders for Iranian oil in November for Iranian sanctions.

Joe McMonigle, energy analyst at Hedgeye in Washington, said he expects the government would have to accept a certain amount of Iranian oil purchases from China in the face of consumption.

"From all countries, I do not think they believe China is going to zero," he said.

Fannon of the US Department of State will travel to Asia in the coming days. A speech in Singapore is scheduled for the 30th of October. One official did not say whether Fannon would use the trip to discuss Iran with China.

Reporting by Humeyra Pamuk and Timothy Gardner in Washington and Henning Gloystein in Singapore; Additional reporting by Nidhi Verma in New Delhi, David Gaffen in New York and Aizhu Chen in Beijing; Letter from Richard Valdmanis; Editing by David Gaffen and Marguerita Choy

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