Oil & Gas

26 Sep 2019

Curbs on Iran and Inflating US Oil Exports

26 Sep 2019  by Azhar Azam   
The most hawkish of Trump’s aide and staunch advocate of pre-emptive strikes on Iran, former national security adviser John Bolton, was ousted from the White House but the Trump administration is not short of sabre-rattlers yet.

After the September 14 drone attacks on two major oilfields in Saudi Arabia, the US President instantly got a “clue” to identify the “culprit” while Secretary of State Mike Pompeo wasted no time to accuse Iran of an “unprecedented attack on the world’s energy supply”.

The following Monday, Tehran spurned the “speculation” that Iranian President Hassan Rouhani is likely to meet Trump during the annual UN session. Trump also rebuffed Pompeo’s prior avowal that he may meet Rouhani at the UNGA with “no preconditions”.

With the latest developments, French President Macron’s diplomatic coup at the G7 Summit — of brokering a potential meeting between the two presidents — has sunk in the Arabian Sea and the roadmap of diplomacy that was “sort of been set” has nearly been washed out.

Trump’s veiled and Pompeo’s blunt allegations on Iran appear to raise the spectre of a US military response that would escalate tensions in the Persian Gulf. But as there is no “definite” evidence about Iran’s involvement, Trump’s craving to avoid and simultaneous preparedness for war is confusing and tips inoperable rhetoric.

The US has threatened to wage a war on Tehran but realistically, Iranians have already been in a state of war due to US economic sanctions, particularly after Trump disavowed from the Iran nuclear deal in May 2018. On paper, medicines and medical equipment and supplies are excluded from US sanctions on Iran. But since Iranian financial institutions are barred from transacting with the international world, ailing people in Iran are essentially pushed into the “ring of death”.

Parsian Bank, the vital conduit for humanitarian trade, was one of the Iranian banks that survived Obama’s sanctions. In October 2018, the US sanctioned the bank, locking up the odd ray of hope for Iranians.

While pharmaceutical companies producing life-saving drugs are largely located in Europe or the US, they vacillate to sell critical medical supplies to Iran fearing the Treasury Department might find some technical or administrative loopholes to punish them for dealing with Iran.

Although France, Germany, and the UK launched a barter system, known as INSTEX, to bypass US banking system and facilitate transactions with Iran, the swap structure could provide limited support for food and medicine due to the “maximum pressure” campaign by the US to reduce Iran’s crude exports to zero.

As the Iranian economy is heavily reliant on crude exports, the US sanctions have severely impacted its economy and fuelled people’s miseries. As a result, Iran’s crude exports have declined 77% since last year while inflation of more than 40% has radically increased foodstuff prices. The sanctions have allowed the US to inflate its crude oil exports by 60% in just over a year. When Trump withdrew from the nuclear deal in May 2018, US crude exports were just over 2 million bpd. But once he reinstated sanctions on Iran and vouched to decimate its crude exports, US oil exports climbed to about 3.2 million bpd by July. Much of US crude was exported to buyers of Iranian oil. Nearly all major buyers such as China, India, Japan, and South Korea now import from the US. While crude oil accounted for 72% of Europe’s total energy imports in 2018, sanctions helped the US ratchet up its oil exports to European nations.

The “maximum pressure” campaign is inflicting havoc on Iran’s economy. IMF estimates that the Iranian economy contracted 3.9% in 2018 after a growth of 3.7%, and 12.5% in 2017 and 2016 respectively, and is likely to further shrink by 6% this year.

The US crusade on Iran would further press Tehran to retrench its public spending, narrowing the government’s ability to fund health and education for its public. This would mean an increased human toll resulting from American economic sanctions on Iran.


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