U.S. expects buyers of Iran's crude to deepen cuts

Wed Dec 5, 2012 5:03pm EST

Related Topics

* Decision on new waivers expected by Dec. 8

* Turkey said has not been asked for new cuts

* State Dept does not demand specific percentage cuts

By Timothy Gardner

WASHINGTON, Dec 5 (Reuters) - The United States expects countries that buy oil from Iran to further reduce their purchases if they want to avoid U.S. sanctions, a State Department source said on Wednesday.

"The law requires additional cuts so we expect buyers to make additional cuts," a source at the State Department said about the U.S. sanctions law signed a year ago by President Barack Obama.

Under that law, banks in countries that buy oil from Iran can be cut off from the U.S. financial system unless the purchases are reduced.

China, India, Japan and South Korea and other countries got six-month "exceptions" to the sanctions in June for reducing oil shipments from Iran. The law says the cuts have to be "significant" but does not dictate how deep they must be.

The sanctions are designed to make it harder for Iran to fund its nuclear program, which Washington suspects is enriching uranium to levels that could be used in weapons, a charge Iran denies.

The architects of the sanctions legislation, Democratic Senator Robert Menendez and Republican Senator Mark Kirk, have urged the White House to require countries to reduce purchases by about 18 percent before getting the next round of waivers.

The 18 percent level surfaced in March when the State Department exempted Japan from sanctions, estimating that it had cut purchases by 15 to 22 percent.

Carlos Pascual, the State Department's top energy diplomat, and other U.S. officials have been having conversations with Iran's top oil buyers as well as oil producers to see how the buyers can tap alternative sources of oil.

DECISION BY DEC 8

The State Department is expected to decide by Dec. 8 whether it will extend the six-month exceptions to the sanctions given to India, Japan and South Korea and other buyers of Iranian crude. The deadline for the decision for China and Singapore comes later in the month.

A State Department fact sheet about the sanctions law says the exceptions "can be renewed if the country continues to significantly reduce its volume of crude oil purchases from Iran in each subsequent 180-day period," implying cuts should be deepened every six months.

While the department expects countries to keep reducing purchases, considerations such as seasonal demand and conditions in the market enter into the equation. Some countries require more fuel in winter months, so the department considers reductions over year-before levels, rather than comparing them with cuts made in the last round.

Discussions the United States has with oil consuming countries focus on long term supply, the State Department source said. The department asks countries how they will cut purchases, rather demanding that they cut by a certain percentage.

Turkey's oil minister said on Wednesday his country has not received any new request from the United States to reduce its level of crude purchases from Iran.

But the purchases seem to be falling. Turkish trade data in November showed Turkey's crude imports from Iran fell by more than 30 percent in October as Ankara turned to Iraq and Saudi Arabia for supply. Turkey got the June exception after it cut purchases by 20 percent.

A Senate aide said the law's requirements of deeper reductions every six months is clear.

"While I find it very hard to believe the U.S. State Department didn't remind our Turkish partners that U.S. law requires them to continue significantly reducing toward a permanent end to Iranian imports, U.S. law stands whether they received a warning or not," said the aide, who did not want to be identified given the sensitivity of U.S. talks with oil consumer countries.

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