June 12 (Bloomberg) -- The U.S. added seven economies to the list of nations qualifying for an exemption from financial sanctions on Iranian oil imports, penalties intended to pressure Iran’s leaders to abandon any nuclear weapons ambitions.
India, South Korea, Turkey, South Africa, Malaysia, Sri Lanka and Taiwan will not be penalized by the U.S. for continuing to import oil from Iran over the next six months because they have proven they “have all significantly reduced” the volume of the oil they buy from Iran, Secretary of State Hillary Clinton said in a statement yesterday.
Oil prices fell for a fourth day in New York on speculation that the U.S. exemptions will limit the risk of global supply disruptions. Crude for July delivery dropped as much as 2 percent to $81.07 a barrel in electronic trading on the New York Mercantile Exchange, extending its loss this year to 17 percent.
China, the leading importer of Iranian crude in the first half of last year, and Singapore were not granted exemptions. U.S. officials familiar with the decision said talks are continuing, and they may win exemptions before the June 28 deadline for the sanctions to take effect. China imports crude from Iran based on its economic needs and has told the U.S. that its actions are “completely fair and transparent,” Liu Weimin, spokesman at the Foreign Ministry, said at a briefing today.
“China didn’t breach UN Security Council resolutions or cause harm to the international community or other countries,” Liu said. “We believe China’s crude oil trade is completely lawful and reasonable.”
Singapore is engaged in “constructive discussions” with the U.S. and has asked its financial institutions to more closely monitor transactions involving Iran, according to a statement from the Ministry of Foreign Affairs. While Singapore enforces only Security Council sanctions, “companies and financial institutions know they must consider the impact of unilateral sanctions on their commercial decisions,” it said.
Singapore imported 1 percent of its crude from Iran in the last two years and none in May, according to the statement. Iranian oil accounted for about 776,000 tons of Singapore’s crude and condensate imports between 2010 and 2011, according to Bloomberg calculations. For the two-year period, the city-state imported 68.1 million tons of crude and 9.5 million tons of condensate, according to data from the trade ministry. Condensate is a light oil that refiners turn into petrochemical feedstock and clean fuels.
India and South Korea were the third- and fourth-largest buyers of Iranian oil in the first half of last year, according to the U.S. Department of Energy.
“By reducing Iran’s oil sales, we are sending a decisive message to Iran’s leaders: until they take concrete actions to satisfy the concerns of the international community, they will continue to face increasing isolation and pressure,” Clinton said.
Analysts interviewed yesterday said that whether China, the world’s largest energy consumer, ultimately reduces its purchases of Iranian oil may not make much difference in the oil revenues earned by the Persian Gulf state, since every other major buyer has substantially scaled back imports.
“As an increasing number of Iranian customers cut back, it becomes less important that Beijing follow suit,” Trevor Houser, an energy analyst and partner at the Rhodium Group, a New York-based economic research firm, said in an interview. “Faced with fewer options to market its crude, Tehran will have to offer” significant discounts or attractive payment terms “to keep Chinese and other buyers at the table.”
Houser said there’s also an advantage to oil markets if the Chinese continue to buy Iranian crude. “Keeping some Iranian oil on the market can help mitigate the risk of a rebound in oil prices as we head into the summer driving season,” he said.
In addition to the seven economies named yesterday, the U.S. granted renewable, 180-day exemptions on March 20 to Japan and 10 European Union nations. The EU collectively was the second-largest buyer of Iranian oil in the first half of 2011. As a single country, Japan ranked second, according to the U.S. Energy Department.
Under the U.S. law enacted Dec. 31, nations have until June 28 to demonstrate they have “significantly reduced” the volume of their Iranian crude purchases. If they fail to do so, their banks that settle oil trades with Iran will be cut off from the U.S. financial system.
No U.S. Definition
President Barack Obama’s administration hasn’t defined what constitutes a significant reduction, and three U.S. officials said they were weighing a number of factors, including each nation’s energy needs and ability to switch to alternative sources. The officials spoke on condition of anonymity to discuss internal deliberations.
The sanctions are part of a coordinated campaign by the U.S. and EU to ratchet up economic pressure on Iran over its disputed nuclear program.
U.S. officials pointed yesterday to figures from the International Energy Agency in Paris showing a decline in Iran’s oil exports as proof that the sanctions campaign is working. The IEA reported that Iran exported 2.5 million barrels of crude a day last year; the independent agency estimates that figure has dropped to between 1.2 million and 1.8 million barrels per day, U.S. officials said.
Oil has declined 22 percent since the start of May as concerns over supplies and potential military conflict have diminished. The U.S. is one of six world powers including China, Russia, the U.K., France and Germany that are engaged in negotiations with Iran over its nuclear programs.
“There was a definite Iran premium in price, but increasingly the Saudis and others have ramped up production,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “That has really neutralized the worries that arose over sanctions.”
Iraq boosted output by 8.7 percent this year through May to 2.935 million barrels a day, while Libya increased production to 1.4 million barrels a day, the highest since January 2011, according to data compiled by Bloomberg. Saudi Arabia pumped 9.9 million barrels a day in May, up 16 percent from 8.5 million barrels a day in March, the data show.
U.S. Senator Robert Menendez, a New Jersey Democrat who was one of the principal sponsors of the legislation that imposed financial sanctions on Iranian oil imports, said in an interview that the administration’s announcement “sends a message to Iran that our intent is to fully implement these sanctions, and delays and half-measures by Iran that don’t address the totality of Iran’s nuclear weapons program will be met with even further action by the United States.”
Iran is the No. 2 producer in the Organization of Petroleum Exporting Countries, and earns more than half of its government revenue from oil sales, according to the International Monetary Fund.
Taiwanese, Korean and Turkish oil imports from Iran since the sanctions law was enacted are down 20 percent, 10 percent and 6 percent year-on-year respectively, according to each country’s customs data and various tanker tracking services monitored by Rhodium, Houser said.
China didn’t receive an exemption even though, he said, it cut imports from Iran by 30 percent in the same period. “That’s because the drop in Iranian shipments to China was the result of a commercial price depute, not a decision by Beijing to buy less, and that price dispute has since been solved,” he said.
The reason China was not included “may be because the Obama administration is unsure about China’s intentions with respect to future crude purchases from Iran,” said Erica Downs, a specialist on Chinese energy at the Brookings Institution, a policy center in Washington.
“There have not been any public indications from Chinese officials or oil executives that they intend to reduce oil purchases to support U.S. sanctions,” she said in an interview from Shanghai. “It would be difficult for the Obama administration to justify an exemption for China at a time when China’s crude imports from Iran are rising, even if they are still below last year’s average.”
Mark Dubowitz, director of the Iran Energy Project at the Foundation for Defense of Democracies in Washington, said in an interview that China might still earn an exemption.
Dubowitz, who has advised the administration and Congress about sanctions, said it’s his understanding that if China extracts deep discounts from Iran on the crude it buys from the Persian Gulf state, it might get a waiver for helping to achieve the end-goal of the sanctions: depriving Iran of its main source of revenue.
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