Photo: President Donald J. Trump delivers remarks on the Iran Strategy in the Diplomatic Reception Room at the White House, Friday, October 13, 2017. In Washington, D.C. (Official White House Photo by D. Myles Cullen)

U.S. to reinstate sanctions on Iranian energy sector as Trump pulls out of nuclear deal

President Donald J. Trump delivers remarks on the Iran Strategy in the Diplomatic Reception Room at the White House, Friday, October 13, 2017. In Washington, D.C. (Official White House Photo by D. Myles Cullen)

By Bartolomej Tomić


U.S. president Donald Trump on Tuesday terminated the U.S. participation in the Iran nuclear agreement devised in 2015 to curb Iran’s nuclear weapons development capacity, labeling it “one of the worst and most one-sided transactions the United States has ever entered into.”

To remind, the deal was signed in 2015 by the P5+1 group (Russia, China, France, Britain, the US and Germany) and Iran, removing the key elements needed for Iran to create a nuclear bomb quickly.

Trump, much to the disappointment of the remaining five partners, has rescinded the deal despite the International Atomic Energy Agency’s assurances that Iran has stuck to its end of the bargain.

In a statement earlier in May, the IAEA agency director said: “Iran is now subject to the world’s most robust nuclear verification regime. IAEA inspectors spend around 3,000 days per year in Iran. They have taken hundreds of environmental samples for analysis and placed around 2,000 tamper-proof seals on nuclear material and equipment.

Hundreds of thousands of images are captured daily by our sophisticated surveillance cameras…Iran is implementing its nuclear-related commitments under the JCPOA.”

Former U.S. President Barack Obama labeled Trump’s the decision to put the Iran deal at risk without any Iranian violation of the deal “a serious mistake.”

 

To remind, prior to the 2015 deal, Iran’s energy sector had been crippled by the sanctions then in place.

Following the agreement, Iran was allowed to return to the energy global market, meaning that, depending on the progress, it was agreed in 2015, that the sanction would be lifted on dealing with Iranian energy and shipping sector, on importing Iranian crude and refined oil, on the export of key equipment for the oil, gas and petrochemical sectors.

It had also been agreed that efforts would be ceased to reduce Iran’s crude oil sales, including limitations on the quantities of Iranian crude oil sold and the nations that can purchase Iranian crude oil.

In a statement on Tuesday, Trump said the U.S. would start reinstating “the U.S. nuclear sanctions on the Iranian regime.”

“We will be instituting the highest level of economic sanction. Any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States,” the U.S. president said.

 

The energy sector, port operators to be sanctioned

 

In the long list of sanctions to be reimposed, as released on Tuesday by the U.S. Treasury Department, we have selected those related to the Iranian energy industry.

Some of the sanctions will be imposed earlier, but those related to the energy sector are expected to take place following the 180-day wind-down period ending on November 4, 2018.

The U.S. government then expects to re-impose sanctions on:

1. Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping

 

2. Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;

 

3. Sanctions on Iran’s energy sector.

 

The Treasury has said that the U.S. would resume efforts to reduce Iran’s crude oil sales, under section 1245(d) of the National Defense Authorization Act, which requires the President to block the property and interests in property subject to U.S. jurisdiction of all Iranian financial institutions, including the Central Bank of Iran (CBI).

It also aims to reduce Iranian oil revenues and discourage transactions with the CBI by providing for sanctions on foreign financial institutions that knowingly conduct or facilitate certain significant financial transactions with the CBI.

Talking about potential exceptions when it comes to the Iranian oil sales, the Treasury said:

“The State Department will evaluate and make determinations with respect to significant reduction exceptions…at the end of the 180-day wind-down period.
“Countries seeking such exceptions are advised to reduce their volume of crude oil purchases from Iran during this wind-down period.”

The Treasury said the Secretary of State, in consultation with the Secretary of the Treasury, the Secretary of Energy, and the Director of National Intelligence, “would make such determinations following a process of rigorous due diligence.”

“For the initial set of such determinations, the State Department intends to consider relevant evidence in assessing each country’s efforts to reduce the volume of crude oil imported from Iran during the 180-day wind-down period, including the quantity and percentage of the reduction in purchases of Iranian crude oil, the termination of contracts for future delivery of Iranian crude oil, and other actions that demonstrate a commitment to decrease substantially such purchases.”

The State Department expects to engage in consultations with countries currently purchasing Iranian crude oil during the 180-day wind-down period, the Treasury said.

Iranian crude exports set to fall

Ahead of the Trump’s announcement, energy intelligence group Pira Energy had forecast that Trump would rescind the Iran deal.

Pira said in a statement that snapping back sanctions on Iranian crude exports would technically require third countries to “significantly” reduce Iranian crude purchases every 180 days (thought to be 18-20% under President Obama).

“But an adjustment period of up to 180 days for crude buyers is possible (pushing back implementation until November), as are temporary exemptions for some countries.

“Moreover, unilateral U.S. sanctions would be more difficult to enforce than the multilateral measures implemented in 2012, while the term “significant” within the sanctions legislation leaves some wiggle room for the administration to avoid trade disputes. But some buyers would likely comply, placing around 200 MB/D of Iranian crude exports at risk by the first half of 2019. This would almost certainly cause a downward revision to our Reference Case, which forecasts 80 MB/D of crude production growth between 4Q18 and 4Q19,” Pira said.

 

Europe disappointed, but still committed to the deal

 

Federica Mogherini, High Representative of the European Union for Foreign Affairs and Security Policy said the EU “regrets today’s statement by the President of the United States on the nuclear deal with Iran. Should the US reconsider this position, we would welcome it.

“As we have always said, the nuclear deal is not a bilateral agreement and it is not in the hands of any single country to terminate it unilaterally.

“It has been unanimously endorsed by UN Security Council Resolution 2231. It is a key element of the global nuclear non-proliferation architecture, it is relevant in itself, but even more so in these times of encouraging signals on the perspective of the denuclearisation of the Korean Peninsula. The nuclear deal with Iran is crucial for the security of the region, of Europe and of the entire world.”

“As long as Iran continues to implement its nuclear-related commitments, as it is doing so far, the European Union will remain committed to the continued full and effective implementation of the nuclear deal. We fully trust the work, competence and autonomy of the International Atomic Energy Agency that has published 10 reports certifying that Iran has fully complied with its commitments,” Mogherini said.

She also said that the lifting of the sanctions has had a positive impact on trade and economic relations with Iran, and to the Iranian people.

“The European Union is fully committed to ensuring that this continues to be delivered on,” Mogherini said.

She has also called on Iran not to let anyone “dismantle this agreement: “It is one of the biggest achievements diplomacy has ever delivered, and we built this together…This deal belongs to each and every one of us. Stay true to your commitments, as we will stay true to ours. And together, with the rest of the international community, we will preserve the nuclear deal.

 

New sanctions implications?

 

Mogherini also said she was worried by the announcement of new sanctions:

“I will consult with all our partners in the coming hours and days to assess their implications. The European Union is determined to act in accordance with its security interests and to protect its economic investments.”

European companies will be particularly interested in this part, as it’s unclear what Trump exactly meant by “any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States.”

It has been said that the European companies who would remain in Iran, doing business, could expect difficulties in doing business in the U.S., but this has yet to be seen.

However, new US ambassador to Germany Richard Grenell hinted at what the U.S. position in this regard might be, much to the criticism of the Germans.

He tweeted on Tuesday that as US sanctions would target critical sectors of Iran’s economy, “German companies doing business in Iran should wind down operations immediately.”

Ahead of the new sanctions announcement, German industrial giant Siemens and Iran’s Persian Gulf Petrochemical Industries Company (PGPIC) on Tuesday signed a letter of intent to broaden their cooperation.

According to Iran’s Shana, the memorandum was signed on Tuesday on the venue of the annual Iran Oil and Gas Show in Tehran. According to the Iranian news agency Shana, the deal was signed by CEOs of the two companies.

“The message of this MOU is that our relationship with Siemens would no longer be limited to commodity purchase; rather the two companies would cooperate in such domains as maintenance and upgrading the quality of products,” Jaafar Rabiei, CEO of PGPIC, said.

“Iran’s petrochemical industry will have long-term cooperation with Siemens. In the past, cooperation with Siemens was based on separate agreements and in case we needed identical products we had to go through the same lengthy process,” he added.

“That would help reduce the price of foreign commodities. We can also link domestic companies with big international firms,” said Rabiei.

 Iran to wait and see – China, Russia committed to the deal

Iran foreign minister Javad Zarif said he’d Iran would work to see if the remaining JCPOA participants can ensure its full benefits for Iran.
“Outcome will determine our response,” he said.

China, as a signatory of the 2015 Iran deal, has said it would remain “in communication with all relevant parties and stay committed to upholding and implementing the JCPOA in an objective, impartial and responsible attitude.”

 

According to Iran’s Shana, Levan Dzhagaryan, the Russian ambassador to Tehran, said Russian firms would not be moved by “any renewed sanctions on Iran’s energy sector,” adding that Vladimir Putin would by no means support any sanctions on Iran.

In a joint statement from the UK Prime Minister Theresa May, Germany’s Chancellor Angela Merkel and France’s President Emmanuel Macron following President Trump’s statement on Iran, they expressed regret and concern regarding the U.S. move, emphasizing “our continuing commitment” to the Iran nuclear deal, and at the same time calling Iran to show restraint in response to the decision by the US.

“Iran must continue to meet its own obligations under the deal, cooperating fully and in a timely manner with IAEA inspection requirements. The IAEA must be able to continue to carry out its long-term verification and monitoring programme without restriction or hindrance. In turn, Iran should continue to receive the sanctions relief it is entitled to whilst it remains in compliance with the terms of the deal,” the statement reads.

Offshore energy today staff

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