US To Slap Sanctions On Allies In Drive To Push Iranian Oil Sales To Zero

The Trump administration said Monday that it will start imposing sanctions on a handful of countries, including key U.S. allies, unless they stop buying oil from Iran after waivers expire next month.

"If you don't abide by this, there will be sanctions," Secretary of State Mike Pompeo said in announcing an end to temporary waivers granted last year to eight countries and jurisdictions that rely heavily on Iranian oil.

"We're going to zero," Pompeo said. He added that "Any nation or entity interacting with Iran should do its diligence and err on the side of caution. The risks are simply not going to be worth the benefits."

The end of waivers is the latest in an escalating series of moves that aim to force Iran to choose between a complete change in its behavior and foreign policy, or economic collapse. It represents what a senior administration official called the "logical playing out of the President's decision to leave the Iran nuclear deal."

It also raises the potential for pain at the pump at the start of the summer driving season. The price for a barrel of crude oil, already up 50 percent in the past four months, surged another 2.4 percent Monday. Pompeo and other officials said the United States, Saudi Arabia and the United Arab Emirates would work to ensure global demand is met and prices remain stable.

Tehran called the administration's sanctions "illegal" and "worthless," and the head of the Islamic Revolutionary Guard's navy threatened to close the strategic Strait of Hormuz.

The stage was set for Monday's action last November, when the administration reimposed sanctions that had been lifted with the 2015 nuclear agreement that the United States withdrew from in May. President Donald Trump granted waivers to eight of Iran's customers, allowing them a six-month grace period to wind down their purchases. Three countries - Italy, Greece and Taiwan - have already stopped buying Iranian oil.

But when the waivers expire on May 2, the United States could sanction the remaining five countries - China, India, Japan, South Korea and Turkey. U.S. officials showed little inclination to allow wiggle room, not even allowing the delivery of oil already purchased.

"Anybody buying oil from Iran has been living on borrowed time for a year," according to a senior administration official, speaking on condition of anonymity at the insistence of the White House.

"I would not count on getting Iranian oil after May 2," the senior official added, noting that "business has risks."

The decision to end the waivers is part of what the administration calls its "maximum pressure" campaign to force change on Iran and to renegotiate parts of the 2015 Iran deal. National security adviser John Bolton has been the chief proponent of the argument that the reimposed sanctions were meaningless as long as waivers were granted to some customers.

U.S. officials expect the zero-waivers policy to make a significant dent in Iran's gross domestic product, which has expanded since the nuclear accord took effect in 2016.

Last year, Pompeo laid out a wish list of 12 demands for Iran to meet if it wants sanctions lifted. He has described it as requiring Iran to act like a "normal country," providing more civil liberties to Iranians and refraining from funding Shiite militias in the region, testing ballistic missiles and keeping its nuclear infrastructure intact so it could theoretically be used someday develop weapons.

"The biggest leverage we have on the Islamic Republic of Iran, is their oil exports," said Brian Hook, special envoy on Iran.

As much as 40 percent of Iran's revenue comes from oil. Pompeo said Iran had been taking in $50 billion a year from oil before the sanctions were reimposed last year. He estimated U.S. sanctions have cost the Islamic republic $10 billion so far.

"The regime would have used that money to support terror groups like Hamas and Hezbollah and continue with its missile development in defiance of U.N. Security Council Resolution 2231," Pompeo told reporters. "And it would have perpetuated a humanitarian crisis in Yemen."

U.S. officials predicted any rise in global oil prices would not be substantial and said they had agreements with other countries to increase production if necessary to offset the reduced supply. Iran has been exporting less than 1 million barrels of oil per day, while U.S. production increased by 1.6 million barrels a day last year alone, and should rise by about the same amount this year.

But oil analysts said the supply is likely to remain tight through the rest of the year.

Some of Iran's customers have been preparing for the cutoff.

Japanese refineries halted imports from Iran late last month after buying 15.3 million barrels between January and March, according to industry sources and data on Refinitiv Eikon cited by the Japan Times.

But Turkey, which had been expecting an extension, suggested it would keep buying Iran's oil. "Turkey rejects unilateral sanctions and impositions on how to conduct relations with neighbors," Foreign minister Mevlut Cavusoglu tweeted.

Beijing also criticized the move. "China opposes the unilateral sanctions and so-called long-arm jurisdictions imposed by the U.S.," Foreign Ministry spokesperson Geng Shuang told reporters. "Our cooperation with Iran is open, transparent, lawful and legitimate - thus it should be respected."

It remains to be seen whether the administration's hard line approach on Iran will have any impact on Middle East politics and security. Supporters of the approach said the strict enforcement of sanctions is the only way to force the Iranian government to change its behavior in ways that enhance peace and stability.

"Without oil exports to generate hard currency, the Iranian government will face severe budgetary pressure that will force it to choose between guns for its terrorist proxies and butter for its people," said Mark Dubowitz, head of the Foundation for Defense of Democracies and a prominent critic of the nuclear deal.

But critics said it amounted to a demand for Tehran to capitulate and increased the potential for confrontation.

"The attempt now to forego oil waivers and spur Iran's economic collapse signals a desperate attempt to coerce Iran to restart its nuclear program in order to invite a dire confrontation," said Jamal Abdi, president of the National Iranian American Council. "Trump is bizarrely set on this destructive policy even as it threatens U.S. security and risks American voters' digging deeper into their pockets to pay for rising gas prices."