Iran will likely find ways to sell its oil to global buyers, but as revenues drop, it may soon need more than gestures of support from its partners.
UNITED NATIONS – The U.S. reimposed strict sanctions on Iran’s oil trade on Monday, pledging to zero out international oil purchases in the coming months.
Countries that keep buying Iranian oil could be hit with “severe, swift penalties,” Secretary of State Mike Pompeo warned, but don’t expect that right away, since all of the top buyers of Iran’s oil secured U.S. sanctions waivers in a move Pompeo said would “ensure a well-supplied oil market.”
When those waivers expires it’s still unlikely Iran will be completely frozen out of international markets. Iran previously evaded oil sanctions for years and knows the techniques to pull that off again.
Homayoun Falakshahi is a senior research analyst for upstream oil at Wood MacKenzie.
“One of them is to disable the tracking system of its tankers carrying Iranian crude. There’s been a case of a tanker that had Iranian crude in it, and then they went and they did a ship-to-ship transfer. So effectively then, if you took that crude from another country, it can be labeled as crude or liquids from that other country – so not being labeled as Iranian.”
Those techniques help Iran sell its oil, but margins are shrinking, and Iran says it may abandon its commitments under the nuclear deal if trade is negatively harmed.
European leaders hope to stop that from happening by building a clearing house (known to E.U. parlance as a “special mechanism”) to allow countries to buy Iranian oil without paying Iran directly.
And yet clearing house remains unbuilt and even lacks a future home, likely since the U.S. can punish whoever hosts it or buys from it. Imperfect as the clearing house plan may be, David Mortlock of the Atlantic Council’s Global Energy Center, said it sends a powerful message:
“How we should view it is as a really astonishing political statement by the Europeans that they stand with Iran on this issue. While the sanctions that are coming back into effect look very much like those that were in place in 2014, 2013, the political isolation of Iran is not what it was.”
For all that support, Iran still needs to pay the bills, and to do that it may soon need more than political gestures from its allies.