Analysis Report | Full Sanction on Iranian Oil


Analysis Report | REPORT SYNDICATION


As full sanction on Iranian oil has started on May 1, 2019, many businesses and other stakeholders wonder what could this mean for the energy-hungry economies?

The attempt to push Iranian oil out of the global oil market had started last year. In an attempt to beef-up the pressure on Iran under the “maximum pressure” policy, the USA announced in May 2018 a ban on importing Iranian oil. In the announcement, the USA kept the scope of a six-months period for countries across the world to bring down their imports of Iranian oil to zero by November 2018.

However, just before the expiry of this six months period, in November 2018, the USA had extended this period for eight major importers of Iranian oil to further six-month.

These eight importing countries were: India, China, Turkey, Greece, Italy, Japan, South Korea and Taiwan.

On April 22, 2019, the USA announced that it will not extend the exemption period any further. As the exemption for these eight countries ran out on May 1, those of the state-owned organizations and private businesses (from these countries) which would continue to import oil from Iran after May 1 could face the USA’s sanctions.

In such circumstances, big businesses across the world, including those from these eight countries, face an extreme dilemma: either diversify their source of oil imports very quickly (which certainly is a difficult task) or face sanctions from the USA for continuing to import oil from Iran.

Washington is also working to keep the oil market well-supplied, with Saudi Arabia and the United Arab Emirates (UAE) prepared to export more oil.

REDUCING DEPENDENCE ON IRAN

Many analysts have opined that economies and businesses need to reduce their dependency on Iran, as overall scenario regarding Iran is unstable.

Even if the USA withdraws its sanctions on Iran in future, this doesn’t give economies and businesses any reason to be sure of a stable scenario for Iran. This is because, the issue of sanctions on Iran has been very inconsistent.

An Kurdistan24 article had provided the exact picture of this inconsistency:

“… the United States policy regarding Iran is not a stable or consistent one and keeps changing. The sanctions timeline – decades-long sanction, sanction-withdrawal (2015), reimposing of sanction (2018), and, finally, tightening of sanctions (2019) – is a testimony to the US’ inconsistent Iran policy.”

Furthermore, analysts have been suggesting economies and businesses to heavily look for alternatives to Iranian oil, as Iran is on the verge of sheer instability. Few factors are pushing Iran towards this instability:

  1. various ethnic communities’ dissatisfaction over how the Iranian leadership treats them,
  2. growing sentiment of various suppressed communities to adopt an armed rebellion against Iranian state,
  3. the secular opposition’s rising urge to overthrow current Iranian establishment,
  4. the continuous protests by the mass Iranians in towns and villages against the failing governance system, and last but not the least
  5. the mounting efforts by the some regional and extra-regional countries to destabilize Iran for a regime change.
USA EXPECTS RECIPROCITY FROM INDIA

The total ban on Iranian oil puts large Indian businesses in a deep crisis regarding their energy supplies, as Iran accounts for about 13% of India’s oil imports.

The USA had stood by India after the Pulwama attack and expects reciprocity from India on the USA’s policy of “maximum pressure” on Iran, which is intended to disrupt Iran’s terror network.

Furthermore, the USA had contributed substantially at the United Nations Security Council (UNSC) to brand Jaish-e-Mohammad chief Masood Azhar a “global terrorist”. The USA had to go through hard time to bring Beijing on board when the UNSC issued a statement condemning the February 14 Pulwama attack.

Washington is also working with Delhi to keep the oil market well-supplied, with Saudi Arabia and the UAE prepared to export more oil to India. Immediately after the announcement to end the exemptions, India said it was adequately prepared to deal with the impact of the USA’s decision to end waivers that allowed it to buy Iranian oil without facing sanctions.

The Ministry of External Affairs official spokesperson Raveesh Kumar said the government will continue to work with partner nations, including with the USA, to find all possible ways to protect India’s energy and economic security interests.

Raveesh Kumar said:

“The government has noted the announcement by the US government to discontinue the Significant Reduction Exemption to all purchasers of crude oil from Iran.”

Raveesh added:

“We are adequately prepared to deal with the impact of this decision.”

CHABAHAR PORT PROJECT EXEMPTED AGAIN

India and Iran will continue to enjoy the exemption for the Chabahar seaport project. The USA perhaps fear that if its sanctions cover Chabahar seaport, Iran may replace India with China as Iran’s major partner on Chabahar seaport project. Such development would have gone against the interests of both the USA and India.

It is worth noting that with the courtesy of Chabbahar, both USA and India are trying to counter China Pakistan Economic Corridor (CPEC), a branch of China-led Belt & Road Initiative (BRI), and to counter Pakistan’s influence on Afghanistan.

IS SANCTION POLICY WORKING?

The USA assured its partners that the sanction policy is not targeted against its partners, it is instead designed to put “maximum-pressure” on Iran.

The sanction policy has already been working well. Iran has been losing oil revenues due to reduction in oil imports from Iran. Therefore, Iran has been struggling to provide funds for the continuation of the terrorist activities of organisations like Hezbollah, a Lebanon-based militant group.

Had this sanction was not put in place, the Iranian regime could have used the money earned from oil exports to support terror groups like Hezbollah and Yemen-based Houthi, and could have continue its missile development, in violation of UNSC resolution 2231.