In breaking news, on April 22, 2019, the U.S. government announced that it will not renew trade waivers that have allowed Japan, China, India, Turkey, and South Korea to import Iranian oil with no fear of economic reprisals in the form of U.S. sanctions. That sweet deal is coming to an end. U.S.-imposed sanctions will be applied to any of these countries that fails to halt oil imports from Iran by May Day (May 1).
The waivers, called Significant Reduction Exceptions, were granted after President Trump backed the U.S. out of the Iranian nuclear pact, which we covered almost a year ago.
The Trump administration wants to cripple the Tehran pipeline where it really hurts: in the cash drawer.
The purpose of economic sanctions is to apply pressure in the global marketplace in order to “persuade” adversarial countries and their allies to “cooperate” with the first country’s demands. Measures taken may include travel bans, asset freezes, arms embargoes, capital restraints, foreign aid reductions, and trade restrictions.
These days, economic sanctions are often used as a substitute for war after failing to achieve a diplomatic solution.
Many analysts believe that economic sanctions, because they limit trade, are always a bad idea. But supporters point out that sanctions can work with no military combat. The secret to sanction success lies in its implementation.
Investopedia calls economic sanctions “a sort of carrot-and-stick approach to dealing with international trade and politics.”
The U.S. has been at odds with Iran for decades over demonstrated acts of terrorism as well as alleged, illegal nuclear proliferation. President Trump is now doubling down economic pressures to starve all nations that aid and abet terrorist activities, whether directly or indirectly.
China tops the U.S. list of targeted offenders. This huge nation, full of hungry consumers, purchases half of Iran’s oil. Not surprisingly, the Communist country “resolutely opposes the move” taken by the Trump administration to plug the flow of oil out of Iran.
“The cooperation between China and Iran is open, transparent, reasonable, and legitimate, which thus deserves respect,” rebutted Geng Shuang, speaking for the Chinese Foreign Ministry.
Turkish Foreign Minister Mevlut Cavusoglu joined the chorus against sanctions based on purchases of Iranian oil, saying, “Politically, it is not right. Ethically, it is not right. In terms of commerce, it is definitely not right.”
U.S. Secretary of State Mike Pompeo said during a televised announcement:
“Any nation or entity interacting with Iran should do its diligence and err on the side of caution. The risks are simply not going to be worth the benefits.”
India, the second-largest buyer of Iranian oil, has stated officially that it will comply with U.S. demands to avoid sanctions. However, the country has a history of getting around U.S. restrictions by trading with their own rupee currency rather than U.S. dollars.
The other four countries facing U.S. economic sanctions within the next week or so have few options: negotiate, retaliate – or cheat. Compliance is also a problem, as Pompeo admitted:
“It will be hard for the U.S. administration to take action against private tankers that are owned by private companies that are foreign-flagged. It will cause diplomatic issues if they attempt to do that [cheat].”
Iran has responded by threatening to blockade the Strait of Hormuz – the only sea passage from the Persian Gulf and the Gulf of Oman to the Arabian Sea and the open ocean. Fully one-fifth of the world’s oil passes through this vital (and busy) seaway. The U.S. has promised to thwart any Iranian attempt to stop this watery trade route.
White House press secretary Sarah Sanders wrote in an emailed statement the President’s goal in revoking special privileges for major buyers of Iran’s oil:
“This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.”
Pompeo added that the U.S. wants to “incentivize Iran to behave like a normal country.”
Speaking for Iran’s Foreign Ministry, Abbas Mousavi explained that his country “basically gives no credit to exemptions from these sanctions” because the actions of the U.S., in this case, are illegal.
Taiwan, Italy, and Greece avoided the current international fracas by taking action to stop their imports of Iranian oil.