U.S. Risks Roiling Oil Markets in Trying to Tighten Sanctions



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WASHINGTON – The Trump administration has reached a critical point in its efforts to tighten US oil sanctions against Iran and Venezuela.

By pressuring China and India to end or drastically reduce oil purchases from Iran and Venezuela, US officials are trying to disrupt a key economic lifeline for what the administration regards as two dishonest nations that threaten the stability of the Middle East and the Middle East. Latin America.

But they must do so without ruining global markets, further damaging relations with China and India or raising gasoline prices in the United States.

The dilemma has led to a fierce debate within the Trump administration, which will decide by May 2 whether to grant exemptions to China, India and three other nations to buy Iranian oil. The stoppage of oil shipments would restrict global oil supplies and increase costs at a time when much of the world economy is slowing.

"If you want to keep gas prices low, it does not seem that the best strategy is to put the maximum pressure on exports from Venezuela and Iran," he said. Helima Croft, the global director of commodity strategy at RBC Capital Markets and a former C.I.A. energy badyst

When the election of 2020 approaches, President Trump is willing to reduce gas prices, especially as summer approaches, when energy consumption increases and Americans take to the road. Since mid-February, retail gas prices have risen and the world reference price for oil has topped $ 70 a barrel, roughly what it was before Trump pulled the United States out of a nuclear deal with Iran last May.

"Oil prices are rising too much. OPEC, please, relax and take it easy ", Mr. Trump tweeted In late February, he urged the global oil cartel to increase production. "The world can not make a price rise, fragile!"

Both Iran and Venezuela are members of the Organization of Petroleum Exporting Countries.

The Trump administration has been trying to force a major political change in Iran, withdrawing from a 2015 nuclear deal and imposing sanctions as punishment for actions in the Middle East that Washington considers unacceptable. It is also pressing Venezuela with sanctions while US officials seek the ouster of President Nicolás Maduro.

But leaders in Iran and Venezuela have proven to be durable, even when their main source of income, oil exports, declined.

Now American officials are trying to inflict greater economic pain. The internal debate on how to do it was detailed by a dozen current and former officials and executives and badysts of the oil industry.

China and India have huge energy needs. Both were granted a six-month exemption last November to buy Iranian oil, but neither of them has complied with US demands to greatly reduce their purchases.

Exemptions were also granted to Japan, South Korea and Turkey. The three joined China to overcome the country limits that the Trump administration had set for Iranian oil imports, according to the International Energy Agency.

"It's the president's decision," Secretary of State Mike Pompeo said on Friday when asked about discussions about the extension of exemptions. "All I will say is that we will arrive at the correct answer."

Mr. Pompeo is inclined to continue the exemptions, while John R. Bolton, the national security adviser, is pushing for Finishing them, according to people informed about the discussions. Both are Iranian hawks.

"With the objective of reducing exports to zero, there are many potential disadvantages," said Wendy R. Sherman, a former senior State Department official who helped negotiate the nuclear deal with Iran. "You do not want to sink the global economy, you do not want to send the price of oil through the clouds."

Tensions with China could threaten trade talks and cooperation in North Korea, both pillars of Mr. Trump's diplomacy. Turkey, a NATO ally, can become more dependent on Russian energy if it is pushed to buy less Iranian oil.

But Saudi Arabia, an ally of the Trump administration, has criticized the exemptions. Last fall, anticipating US sanctions against Iran, the kingdom increased its own oil production and, instead, was surprised and frustrated by the exemptions that drove down prices.

In a letter dated April 4, 23 Republican senators urged Mr. Trump to immediately halt all Iranian oil exports, a process that the administration has called "zero."

At a congressional hearing last week, Sen. Ted Cruz, a Republican from Texas, told Mr. Pompeo that the revenues from Iran's daily oil exports were "generating billions of dollars that are financing the ayatollah, and I think that endangers our security. "

Mr. Pompeo said: "I think we have been clear about our goal of getting Iran to zero as soon as possible, and we will continue to do so."

Previous exemptions were granted to China, India and other buyers of Iranian oil in 2012, when the Obama administration imposed harsh sanctions on Tehran over its nuclear program. At that time, the State Department accepted the exemptions as long as countries showed they were steadily reducing their Iranian imports, said John Hughes, the department's former deputy director of sanctions policy and now vice president of the Albright Stonebridge Group.

Those sanctions ended as part of the 2015 agreement, mediated by the world powers and Tehran, to limit Iran's nuclear program. Mr. Trump withdrew from that agreement last May, and Iranian crude exports plummeted by more than 25 percent, or around 600,000 barrels per day, between June and September.

By December, It was clear that US sanctions were having a great effect. Taiwan, Greece and Italy never used the exemptions and ended their Iranian imports.

But now, Iranian exports are recovering.

In February and March, Iran exported around 1.3 million barrels per day. That was a remarkable increase compared to December, even if it was still half of what was exported in April 2018, the month before Trump withdrew from the nuclear deal.

Only China is importing more than 500,000 barrels of Iranian crude per day, close to its average import level before the November sanctions.

India is Iran's second largest oil customer. It has adhered to Washington's commitment to import no more than 300,000 barrels per day, but has not consistently reduced purchases.

India also depends on Venezuela's oil exports. But Venezuela's biggest customer was the United States, and in January the Trump administration imposed sanctions to end those sales and starve Maduro's revenue government. The United States and 53 other nations recognize Juan Guaidó as interim president of Venezuela and want to force Maduro out of power.

The government hoped that a new government in Venezuela would increase oil production and exports and, in turn, help Washington to squeeze Iran. In contrast, India and China have bought much of the Venezuelan oil that would otherwise have gone to the United States.

India pays Venezuela for its oil in cash, with a discount of 20 to 30 percent below current world prices, while China agrees to cancel Caracas' debt. Rosneft, the Russian oil company, has been supplying Venezuela with fuel. What's wrong with it He helped Mr. Maduro to dig.

A drop in the supply of oil from Venezuela and Iran, together with an escalation of the civil conflict in Libya, another oil producer, has caused an increase in the world benchmark oil prices, at almost $ 20 per barrel, or 40 per barrel. cent, since the beginning of the year.

That, in turn, has caused gas prices to rise in the United States, at an average of one cent per day for the last month alone. Analysts said oil prices could rise $ 10 a barrel or more if Iran's exemptions are not granted.

"It will be D-Day for oil prices in 2019," said Amy Myers Jaffe, oil expert at the Council on Foreign Relations.

Saudi Arabia could increase production to lower prices. But he has no plans to do so, after being burned last fall by Trump administration exemptions.

Sadad Ibrahim al-Husseini, a former executive vice president of Saudi Aramco, the Saudi state oil company, said Trump lost credibility when he granted the exemptions.

"I do not think Mr. Trump understands the fundamentals of oil, and I doubt that OPEC will agree with his thinking," he said. "That would lead to self-destruction."

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