Trump’s Economic War Against Iran Began Sunday
Despite the bravado the Trump Administration has given waivers to China, Japan and India to continue to buy oil from Iran.
By James DiGeorgia
President Trump's withdrawal from the Iran nuclear deal officially went into effect Sunday at midnight and as a result the United States has re-imposed sanctions on Iranian oil and has barred Iran’s use of the Belgium-based payments system SWIFT — which is a vital linchpin of the global financial system and facilitates Iran getting paid for its oil exports. The swift system also allows Iran to pay for its imports and finance its activities globally.
Being barred SWIFT was a key part of Europe's strategy to negotiating the Iranian nuclear deal. The decision by Europe to comply with the new U.S. sanctions may not preclude Europe from activating a special payments system to maintain its trade ties with Iran. Treasury Secretary Mnuchin warned today in a Financial Times op-ed that foreign financial institutions that "knowingly engage" in "certain significant transactions" with Iran will be subject to sanctions.
Iranian President Hassan Rouhani pledged to continue exporting oil in defiance of the Trump Administration's "economic war.” This will be a lot easier for Iran to do because the Trump Administration has given wavers to India, Japan, and China that allows them to continue to buy Iranian oil. In effect, Trump has literally caved on a legitimate ban on Iranian oil.
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In a joint statement, the European Union, France, Germany, and Britain — who want to maintain trade ties with Iran — said they "deeply regret" the re-imposition of U.S. sanctions. Unlike China, India, and Japan, Europe will not receive exemptions from the United States and is expected to establish a special payments system with Russia and China despite Mnuchin’s threats of punishment/.
Iranian exports have already fallen by almost a million barrels per day in the run-up to the formal re-imposition of U.S. Sanctions. Other oil producers are stepping up production, but there is a risk in the short term the oil market could get a lot tighter.
There should be enough growth in oil supplies from other producers including the United States and Saudi Arabia to meet winter demand without a price spike. OPEC's spare capacity, 700,000 barrels per day, can be brought online within 30 days. Only a frigid winter could result in demand exceeding supplies. There’s also the possibility that as a result of the trade war between the United States and China that its demand for oil could weaken.