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U.S. Says Iran Crude Buyers Must Pledge Cuts to Avoid Sanctions

Carlos Pascual
“What we are looking for is for countries to come to us and tell us if they believe that they should be in that category that deserves an exemption, what are the kinds of significant reductions that they are willing to pursue,” said Carlos Pascual, the State Department’s special envoy and coordinator for international energy affairs. Photographer: Mandel Ngan/AFP/Getty Images

The Obama administration wants China, India and 10 other nations to present specific plans of how they will curtail Iranian oil imports, saying past cuts aren’t enough to win them an exclusion from new U.S. sanctions.

Secretary of State Hillary Clinton this week granted Japan and European Union countries six-month, renewable exemptions from the measures that take effect June 28, crediting them with “significantly reducing” imports from the Persian Gulf nation.

While China and India, the two biggest buyers of Iran’s crude, have made cuts in recent months and years, they were not granted exemptions. The distinction is that the EU and Japan made assurances they will go beyond past reductions and continue to curb purchases from the world’s fourth-biggest producer, U.S. officials say.

“What we are looking for is for countries to come to us and tell us if they believe that they should be in that category that deserves an exemption, what are the kinds of significant reductions that they are willing to pursue,” said Carlos Pascual, the State Department’s special envoy and coordinator for international energy affairs.

Japan, the No. 3 importer of Iran’s oil, detailed to the U.S. its plans to boost purchases from alternative suppliers, the U.S. officials said. China, India, South Korea, Turkey and eight other buyers of Iranian crude haven’t yet made similar pledges and past cuts alone can’t be taken as evidence of future intent, said four U.S. officials who spoke on condition of anonymity because diplomatic discussions are private.

‘Significant Reduction’

The new sanctions law, enacted Dec. 31, doesn’t define what counts as the “significant reduction” needed to qualify for an exemption from penalties. U.S. officials say they have not quantified it because there is no rule of thumb or percentage of cuts that applies to all cases. Each country has different energy needs, and will be reviewed on a case-by-case basis, the officials said.

If a country doesn’t prove it is making the necessary reductions by the end of June, any institution in that nation that settles petroleum trades through Iran’s central bank will be cut off from the U.S. banking system.

The first round of exemptions, issued to EU nations and Japan and valid until Sept. 16, were meant to set an example to others, said Victoria Nuland, a spokeswoman for the State Department. The EU banned new oil contracts with Iran on Jan. 23 and embargoed all Iranian oil effective July 1.

Japan’s Cuts

Publicly available data shows Japan made “seasonally adjusted” cuts of between 15 percent and 22 percent in the second half of last year compared with the same period in 2010, depending on the data source, Pascual testified before Congress March 20.

Japan bought 8.4 million kiloliters of oil from Iran from July through December 2011, compared with 10.2 million kiloliters in the same period of 2010, according to Japanese government statistics. That’s a 17.6 percent reduction. Japan’s finance minister, Jun Azumi, said his government welcomed the U.S. exemption and intends to “keep reducing oil imports at a certain pace.”

The U.S. sanctions are among dozens of measures taken by the U.S. and the EU since November to ratchet up economic pressure on Iran’s leaders in an effort to persuade them to abandon any illicit part of their nuclear program. The U.S., Europe and Israel have accused Iran of seeking the capability to build a nuclear weapon. Iran says its program is for civilian energy and medical research.

Nuclear Program

U.S. officials say they are in talks with the 12 importers that have not received exemptions, and are hopeful they will reach an understanding with each of them. South Korea, the No. 4 buyer of Iranian crude, has requested an exemption, and U.S. diplomats say they are optimistic that officials in Seoul will pledge future cutbacks before the June 28 deadline.

South Korea is seeking exclusion from the sanctions, a government official from the Asian nation said March 21. Talks may be held before May, according to the official, who is involved in the discussions and spoke on condition of anonymity because the information is confidential.

South Africa has “downscaled” Iran imports, partly in response to requests from the U.S., and also to diversify supplies, Clayson Monyela, a spokesman for the Department of International Relations and Cooperation, said yesterday.

China, India

While China and India, the world’s fastest-growing major economies, supported four rounds of United Nations sanctions on Iran over its nuclear program, neither has endorsed the unilateral sanctions imposed by the U.S.

Indian Oil Minister Jaipal Reddy and Foreign Secretary Ranjan Mathai have said the South Asian nation will continue to buy from Iran. Still, India’s oil imports from Iran will be less than 17 million tons in the year ending March 31, Mathai said. That would be at least 8 percent lower than imports for the 12 months ended March 2011 and 20 percent below 2010 levels, according to government data.

India has been “following a general policy of diversifying our oil imports,” Mathai said. Iran is currently India’s second-biggest crude supplier.

While India hasn’t asked its refiners to stop purchasing Iranian crude, the government has told processors in the South Asian nation to seek alternative supplies and gradually reduce dependence on the Persian Gulf state because of increasing pressure from the U.S., said three Indian officials with direct knowledge of the situation.

Mangalore Refinery

India reduced purchases from Iran every year since the 12 months ended March 2009, according to government figures presented to parliament this week. Imports are poised to fall further as its biggest buyer of Iranian oil, state-owned Mangalore Refinery & Petrochemicals Ltd., plans to cut its term contract by about 15 percent compared with the previous 12 months, two people with direct knowledge of the matter said.

China, the biggest buyer of Iranian crude, cut imports by 45 percent in February compared with the previous month to the lowest level since May 2010, after a disagreement over payment terms between Iran and China International United Petroleum & Chemical Co., the nation’s biggest oil trader. China reduced Iran imports by 14.3 percent in January and 4.5 percent in December, customs data show.

Barter Deals

“China has been importing Iranian crude through normal channels based on our own needs for economic development,” Hong Lei, a foreign ministry spokesman, said at a media briefing yesterday, when asked if the Asian country was considering import cuts from Iran. “China has always been against unilateral sanctions, based on domestic laws, imposed by any one country on another. We especially do not accept unilateral sanctions that are forcibly imposed on a third-party country.”

Sanctions have made it increasingly difficult to insure, ship and pay for Iranian oil. India has used a Turkish bank to route payments to Iran, dealt in currencies such as the rupee and yen and asked Iran to secure its own ship insurance.

Efforts to arrange barter deals to pay for Iranian oil may be perceived by some in Washington as a means to skirt sanctions, one U.S. envoy said. India and Iran are considering bartering commodities and other products for crude through a rupee account with state-run UCO Bank, said two people with knowledge of the matter.

“Despite whatever the Indians say about decreasing Iranian oil imports, there are other ways they can continue to get it, through Iraq and Afghanistan, for example,” Barbara Slavin, a senior fellow on Iran at the Atlantic Council, a research institute in Washington, said in an interview. “India has such energy needs, they can’t comply with these sanctions.”

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