WASHINGTON/DALLAS (Reuters Breakingviews) - Tough talk by the United States on Iran sanctions is butting up against oil economics. Eight countries can temporarily keep importing Iranian oil without defying the restrictions set to go into effect next week. Top U.S. diplomat Mike Pompeo says the aim is still to go to zero. With a domestic election and Saudi Arabia in a mess, it’s a way to keep acting tough while limiting the risk of oil price spikes.
The Trump administration has pushed a hard line against Iran, despite allies like the European Union pushing back. On Monday, the U.S. government will re-impose sanctions on transactions involving Iranian oil, gas and financial institutions. More than 700 entities will be added to a blacklist. Pompeo says the goal is to change what he calls the Iranian leadership’s malignant behavior.
The waivers are one way to manage the fundamental contradiction in U.S. President Donald Trump’s twin objectives of keeping oil prices low while potentially removing 2 million-plus barrels per day from an already tight supply market. Although a Reuters survey found that the Organization of the Petroleum Exporting Countries boosted oil production in October to the highest level since 2016, Brent crude last month hit $86 a barrel on fears lost output from Iran and Venezuela would not be compensated by higher Saudi Arabian output or U.S. shale, which faces short-term infrastructure bottlenecks.
As it happens, lower recent demand forecasts and economic slowdown fears have eased the pressure, pushing Brent back to $72 a barrel ahead of Tuesday’s midterm elections. But waivers are still a sign that the Trump administration is not as immune to foreign lobbying as it might look. Pompeo did not give details but Bloomberg reported exemptions will go to China, India and Japan. His assurances that these will be temporary maintain the impression of toughness – but deadlines can always be stretched out if the market tightens.
The latest U.S. stance also enables flexibility should Congress punish Saudi for the murder of journalist Jamal Khashoggi. U.S. lawmakers return to Washington in mid-November and have threatened to cut off U.S. arms sales and impose sanctions. If so, the kingdom could conceivably cut oil supply in retaliation. A potential Iran oil waiver for Turkey might prevent Ankara from forcing the issue by revealing more about Saudi involvement. Meanwhile, Trump can have his Iranian sanctions cake and eat it.
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