U.S. Exempts India, Other Countries, Not China, from Iran Sanctions

By and | June 12, 2012

The United States extended exemptions from its tough, new sanctions on Iran’s oil trade to seven more economies on Monday, leaving China the last remaining major importer exposed to possible penalties at the end of the month.

In the latest sign Washington is working with other countries to pressure Iran’s nuclear program, India, South Korea, Turkey and four more economies will receive waivers from financial sanctions in return for significantly cutting purchases of Iranian oil, Secretary of State Hillary Clinton said.

China, which alone buys as much as a fifth of Iran’s crude exports, and Singapore, where much of the country’s fuel oil is blended, did not receive such waivers, ramping up pressure on two important U.S. trade partners in Asia.

The sanctions, which the United States may impose starting on June 28, are Washington’s most ambitious measures yet to strangle Iran’s nuclear program by cutting funding from its oil export sales.

The United States and the European Union believe Iran is trying to build nuclear weapons. Tehran says the program is strictly for civilian purposes.

Beyond the 27-country EU, which has banned Iranian imports from July under separate sanctions, other buyers of Iran’s crude have pledged to cut purchases by up to a fifth.

“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 in a release.

She is hosting high-level, previously scheduled talks with ministers from India and South Korea, Iran’s second- and fourth-largest oil buyers, this week in Washington.

Geng Shuang, a spokesman for the Chinese embassy in Washington, said his government “opposes unilateral sanctions imposed by one country on others”. He added that China will push for a diplomatic solution to the Iran nuclear issue through negotiations.

South Africa, Taiwan, Malaysia and Sri Lanka will also be exempt from the sanctions, Clinton said. Japan and 10 EU countries had been granted exceptions in March.

Banks and other institutions in the economies that received waivers will be given a six-month break from the threat of being cut off from the U.S. financial system under sanctions signed late last year by President Barack Obama.

China, Japan, India and South Korea cut imports by about a fifth from the 1.45 million barrels per day they were buying a year ago as they prepared for the sanctions to come into effect.

The cuts and threat of sanctions have helped drain Iran’s oil revenues by an estimated $10 billion since the start of the year, said Senator Robert Menendez, a Democrat who helped craft the measures.

“While I look forward to seeing the actual levels of reductions made by each country, I presume that they will be on par with the significant reductions in purchases made by Japan,” which cut its buying by about 15 percent to 22 percent, he said.

Oil traders had largely expected the exemptions after the cuts, with Obama seeking to tread a fine line between tightening the screws on Tehran and triggering a squeeze on global oil supplies that could tip the U.S. economy back into recession.

“The White House doesn’t want to see 1 million barrels per day (bpd) of Iranian exports cut when oil prices are still relatively high, but at the same time they want to make sure the sanctions still have some bite,” said Andy Lebow, senior vice president of energy at Jefferies Bache in New York.

“No one thinks they’re going to slap sanctions on China.”

The bigger issue for markets will be whether separate European sanctions blocking access to tanker insurance cause shipments to grind to a halt from July 1.

Although China did not immediately receive a waiver, it does not necessarily follow that the United States will impose sanctions on the country from June 28. A U.S. official said last week it would take some time for Washington to gather evidence to support punitive measures against banks that have processed oil transactions.

It was not immediately clear why the administration did not grant China an exemption. Backers of tough sanctions on Tehran believe China has received clandestine cargoes of oil from Iran, which has disabled tracking devices on some of its shipments.

Senior U.S. officials sidestepped questions about those issues in a conference call with reporters, but said the dialogue with China on the issue was constructive.

“We are in discussions with China. It would be premature to comment further on where those discussions might lead,” a senior official said.

He said the United States continued to outline to China the requirements of U.S. law “and we are engaged in a good-faith dialogue to be able to work toward a solution that in our view addresses the fundamental point here, which is how do we reduce the volume of purchases of Iranian crude oil”.

Bob McNally, head of the Washington-based oil consultancy Rapidan Group, said Obama may have delayed a decision on China to avoid criticism he is soft on Beijing ahead of the U.S. presidential election on Nov. 6.

“I wouldn’t be surprised to see China raked over the coals a little longer before a decision is taken on whether to grant them a waiver,” he said.

Obama is under pressure from Congress, which may pass even tougher sanctions on Iran.

“If the administration is willing to exempt all of these countries, who will they make an example out of?” said U.S. Representative Ileana Ros-Lehtinen, a Republican and chairman of the House Foreign Affairs Committee.

(Additional reporting by Roberta Rampton, Paul Eckert and Andrew Quinn in Washington and David Sheppard in New York; Editing by Sandra Maler and Dale Hudson)

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