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Factbox: What happens to Iran sanctions freeze if Trump wants to exit deal

Washington (Platts)--22 Sep 2017 523 pm EDT/2123 GMT


US President Donald Trump appears to be ready to declare Iran in non-compliance with the 2015 nuclear deal, according to Washington-based sanctions experts, but such a decision alone would not reinstate US sanctions against Iran's oil sector.


  • Congress or White House could reimpose Iran oil sanctions
  • Analysts debate impact of US-only sanctions on oil market
  • Iranian crude could again shift to Asia, away from Europe

Trump said Wednesday he has made up his mind about the US' future in the deal, known as the Joint Comprehensive Plan of Action, but he did not indicate whether he wants to leave the agreement.

Trump faces an October 15 deadline Congress set to certify whether Iran continues to comply with the JCPOA. His administration certified compliance in May and in July.

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Analysts see several scenarios for what that decision could mean for the freeze on Western sanctions that has allowed more than 1 million b/d of oil to return to the global market.

Iran's oil production has increased to 3.83 million b/d as of August, from 2.8 million b/d in 2015 before the sanctions were lifted, according to the US Energy Information Administration.

Related Capitol Crude podcast episode: The US is an energy powerhouse, but in an increasingly interconnected, interdependent market


WHITE HOUSE ACTION


If Trump decides not to certify that Iran is in compliance with the nuclear deal, he could follow that up with executive action to end waivers of US sanctions.

Former President Barack Obama used national security waivers to suspend US sanctions on Iranian oil exports, ports, shipping and other sectors as part of the JCPOA. Trump has reissued those waivers before they expired, including one last week.

The White House could let the waivers expire or cancel them mid-cycle, in which case the sanctions would "snap back into legal force, and the Trump administration would be required to enforce" them, sanctions experts Peter Harrell and Elizabeth Rosenberg of the Center for New American Security wrote in a recent paper.

"As a result, the administration has broad legal leeway to snap back US sanctions into place under its own executive branch powers," they said.

Trump could also maintain the waivers issued under JCPOA but impose nearly identical sanctions on Iran's oil sales on other policy grounds, such as concerns about the country's support of terrorism or destabilizing activities in the Middle East, the CNAS experts said.


CONGRESSIONAL ACTION


Another scenario if Trump does not certify Iranian compliance is that Congress could consider legislation to end the sanctions waivers and reimpose those measures.

That legislation would be fast-tracked to be considered within 60 days and would not be subject to a Senate filibuster -- but only if it is introduced by the majority or minority leaders of the Senate and House of Representatives.

"Congress, like the executive branch, would have wide latitude to decide which sanctions to reimpose on Iran, meaning Congress could reimpose only a handful of sanctions or a much broader range of sanctions," Harrell and Rosenberg wrote.

Or Congress could decide not to act, even if Trump does not certify Iranian compliance.

Oil analyst Joe McMonigle of Hedgeye said the White House is likely wary of depending on Congress to reimpose sanctions.

"If the president can do something all on his own without having to go to Congress -- because they haven't been able to do health care or other things -- I think they're going to try to go the executive action route," McMonigle said. "He doesn't need Congress here."

But McMonigle said he sees broad bipartisan support in Congress to get tougher on Iran.

"So I do think that there will be support for what the White House ends up doing here, in terms of exiting the deal," he said.

Related: Find more content about Trump's administration in our news and analysis feature.


TIMELINE FOR REIMPOSING SANCTIONS


McMonigle thinks Trump will declare Iran's non-compliance on or around October 15, and then take a pause to let pressure build on the other parties to the deal -- Iran, China, France, Germany, Russia and the UK.

"I think the White House is sincerely hoping that this spurs some kind of action to get a 'better deal,'" McMonigle said. "The president would be delighted he won some major concessions from Iran."

But McMonigle does not see that happening, so he expects sanctions to be reinstated by year's end or early next year.

Kevin Book, a managing director of ClearView Energy Partners, said in a note Thursday that Trump could abandon the JCPOA as soon as mid-December, with Iran, Europe, China and Russia remaining in the deal after the US reinstates sanctions on Iranian crude sales.


BITE OF US-ONLY SANCTIONS


CNAS' Harrell and Rosenberg question whether unilateral US sanctions imposed without the support of Europe, China and Russia would have the same bite as those that brought Iran to the negotiating table.

"Without foreign cooperation, the Trump administration will likely face significant challenges in effectively implementing major sanctions on Iran and in enforcing penalties on major foreign companies that violate US sanctions," CNAS said.

They argue that while international financial services companies that are heavily reliant on the US may comply with the sanctions, international energy traders "are unlikely to curb their dealings with Iran unless the United States has broad international backing for reimposing sanctions."

Hedgeye's McMonigle, however, said the impact of US-only sanctions on the oil market would be significant and could remove the 1 million b/d that Iran has added since the sanctions were lifted. He said this is because European energy companies that are major buyers of Iranian crude have significant economic exposure in the US.

"It's Total, Repsol, BP and others that are buying the oil," McMonigle said. "Unless the European position is 'we want our companies to get out of the US,' which I don't see as being a plausible scenario, they're going to be subject to sanctions. The European energy companies are not going to want to run afoul of US sanctions."

ClearView Energy's Book predicted Iranian crude flows would shift from Europe to Asia if the US leaves the JCPOA and reimposes sanctions, just as they did in 2012-15 during the sanctions.

"Europe essentially zeroed out its imports, but the 'big four' Asian buyers never fully stopped purchases," Book said. "If similar dynamics were to govern this scenario, Iranian crude flows could shift from European buyers with low risk tolerances to Asian buyers with higher risk tolerances even as volumes -- and therefore global balances and benchmark prices -- remained essentially unchanged."

The US would then lose "significant leverage" over Asian crude buyers, particularly if the EU did not reinstate its banking, insurance and tanker sanctions imposed in 2012, Book said.

"In short, Asian refiners might buy more Iranian crude and export greater volumes of refined products," he said in the ClearView Energy note.

--Meghan Gordon, meghan.gordon@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com




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