WASHINGTON – The United States on Monday demanded that buyers of Iranian oil stop purchases by May 1 or face sanctions, a move to choke off Tehran’s oil revenues which sent crude prices to six-month highs on fears of a potential supply crunch.
The Trump administration on Monday said it will not renew exemptions granted last year to buyers of Iranian oil, a more stringent than expected decision that caught several key importers who have been pleading with Washington to continue buying Iranian oil sanctions-free.
The United States reimposed sanctions in November on exports of Iranian oil after U.S. President Donald Trump last spring unilaterally pulled out of a 2015 accord between Iran and six world powers to curb Tehran’s nuclear program. Eight economies, including China and India, were granted waivers for six months, and several had expected those exemptions to be renewed.
Tehran remained defiant, saying it was prepared for the end of waivers, while the Revolutionary Guards repeated a threat to close the Strait of Hormuz, a major oil shipment channel in the Gulf, Iranian media reported.
The White House said it was working with top oil exporters Saudi Arabia and the United Arab Emirates to ensure the market was “adequately supplied.” Traders, already fretting about tight supplies, raised skepticism about whether this more stringent approach, along with ongoing sanctions on Venezuela’s oil industry, could backfire in the form of a major spike in prices.
“It is a surprise that the requirement to cease importing Iranian oil should come at this next May deadline,” said Elizabeth Rosenberg, director of the energy, economics and security program at Washington-based Center for a New American Security. “Having only several weeks’ notice before the deadline means there are lots of cargoes booked for May delivery. This means that it will now be harder to get it out by the deadline.”
Iran’s oil exports have dropped to about 1 million barrels per day (bpd) from more than 2.5 million bpd prior to the re-imposition of sanctions. U.S. Secretary of State Mike Pompeo, in a briefing Monday, said “we’re going to zero across the board,” saying the United States had no plans for a grace period for compliance beyond May 1.
The White House intends to deprive Iran of its lifeline of $50 billion in annual oil revenues, Pompeo said, as it pressures Tehran to curtail its nuclear program, ballistic missile tests and support for conflicts in Syria and Yemen.
A senior administration official said President Donald Trump was confident Saudi Arabia and the United Arab Emirates will fulfill their pledges to compensate for the shortfall in the oil market. U.S. Assistant Secretary of State for Energy Resources Frank Fannon said Riyadh was taking “active steps” to ensure global oil markets were well supplied.
Saudi Arabian Energy Minister Khalid al-Falih, in a statement on Monday, did not commit to raising production, saying it was “monitoring the oil market developments” after the U.S. statement, and that it would coordinate with other oil producers to ensure a balanced market. OPEC is next scheduled to meet in June.