Commentary on Political Economy

Monday 19 July 2021



U.S. Weighs New Sanctions on Iran’s Oil Sales to China if Nuclear Talks Fail

U.S. negotiators have been working with international partners to revive the 2015 deal limiting Tehran’s nuclear program

There are risks that fresh crude-oil sanctions could backfire, driving Iran to accelerate its nuclear program. PHOTO: ESSAM AL-SUDANI/REUTERS
in London and
in Washington

The U.S. is considering tighter sanctions on Iranian oil sales to China as a way to encourage Tehran to conclude a nuclear deal and raise the costs of abandoning stalled negotiations.

U.S. negotiators have been working with European and other international partners in Vienna since April to revive the 2015 deal that limits Iran’s nuclear program in exchange for an easing of broad sanctions. As those talks falter, the U.S. is running through options intended to induce Iran to keep negotiating or punish it if it doesn’t, according to U.S. officials and people familiar with the matter.

One plan being drafted would choke off Iran’s swelling crude-oil sales to China, the country’s main client, through fresh sanctions targeting the shipping networks that help export an estimated one million barrels a day and bring critical revenue to Iran, the officials said.

The new steps would take place if nuclear talks fail, the officials said. The plan would involve the aggressive enforcement of current sanctions already banning dealings with Iran’s oil and shipping industry through new designations or legal actions, the officials said. In the past, the U.S. has, for instance, sanctioned the captain of a Syria-bound Iranian crude tanker and obtained the seizure of fuel cargoes Tehran was sending to Venezuela.

“There is not much left to sanction in Iran’s economy,” said one of the U.S. officials. “Iran’s oil sales to China is the prize.”

No decision has been made on proceeding, the officials said. There are risks that the effort could backfire, driving Iran to accelerate its nuclear program. Other options are also being considered, the officials said.

Those include a diplomatic campaign to persuade China, India and other major crude-oil buyers to cut imports of the commodity, non-oil trades, debt financing and financial transfers, a second official said.

Negotiations have stalled as Iran’s hard-line president-elect, Ebrahim Raisi, has said that Tehran won’t agree to a deal without a comprehensive removal of U.S. sanctions, something Washington has said it won’t do. Iran’s deputy foreign minister and top nuclear negotiator, Abbas Araghchi, tweeted Saturday that talks must wait until next month’s inauguration of Mr. Raisi.

Iran’s nuclear program has made strides over the past year. According to estimates of European and U.S. officials, it could amass enough fissile material for a nuclear weapon within two to three months.

The U.S. is warning that while it is committed to the talks, the time to secure a deal under the 2015 accord is running out. “This process is not indefinite,” said Ned Price, spokesman for the State Department. “There will come a point where our calculus will change.”

Should that point come, the second official said, “There are things that are relatively easy to do…and things that would take more time.”

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Iran’s delegation to the United Nations in New York didn’t return a request for comment.

The Trump administration exited the nuclear agreement, known as the Joint Comprehensive Plan of Action, in 2018, saying it didn’t do enough to thwart Iran’s nuclear aspirations and curb its influence across the Middle East. The U.S. then reimposed widespread sanctions meant to coerce Tehran into signing a new nuclear and security deal by crippling Iran’s economy, including an embargo on its crude-oil exports.

Since Joe Biden’s election as president, Iran’s crude-oil exports, most to China, has climbed, at times reaching 1.5 million barrels a day, according to the oil-shipping tracker Inc., a U.S.-based online service that uses satellite imagery to follow deliveries. That volume is three times more than its low point of 500,000 barrels a day after President Donald Trump reimposed sanctions.

Republican lawmakers and others critical of the Biden administration’s Iran policy have said an apparent lack of enforcement and the prospect of repealing most sanctions are weakening Washington’s diplomatic leverage and emboldening Tehran.

Biden administration officials said the U.S. is committed to enforcing sanctions. They point to several recently announced prosecutions and blacklistings of Iranians and their associates for alleged violations of oil-trade sanctions. The U.S., they said, also uses nonpublic actions to enforce sanctions such as issuing formal démarches to nations that have allowed imports.

Iranian officials and traders have become increasingly adept at evading sanctions, using cryptocurrency to avoid the banking system and carrying out covert ship-to-ship transfers at sea to conceal the origin of their cargo, according to Iranian oil traders and shipping trackers. They added that business people from China and other Asian countries are no longer shying away from buying Iranian oil since Mr. Biden came into power with the intent of rekindling ties with Tehran.

United Against Nuclear Iran, a New York group that campaigns against Tehran’s nuclear program, says the number of foreign vessels involved in transporting the country’s oil has risen to 123 from 70 in November 2020. Almost half of such vessels are now flagged in Panama, which had deregistered ships involved with Iranian oil under pressure from the Trump administration, according to the group.

Meanwhile, the election of Mr. Raisi as president last month is adding complications to the talks, said an Iranian diplomat and an adviser to the president-elect. Mr. Raisi is keen on obtaining concessions on sanctions to revive the Iranian economy, they said. The change to a new administration, however, also means a new negotiating team with potentially different views on a prospective deal, they said.

“We’re in a transition period as a democratic transfer of power is under way in our capital,” Deputy Foreign Minister Araghchi said in his tweet Saturday. “Vienna talks must thus obviously await our new administration.”

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