1. NS3040 Renewed Oil Sanctions On Iran Fall Term, 2018
CFR, The US Trade Deficit: How Much Does it Matter?

2. Overview I
August 5, 2018 reinstated a first set of U.S. sanctions on Iran that had been suspended under the Joint Comprehensive Plan of Action (JCPOA) nuclear deal.
Will not come back into force until November 5
Sanctions will include Iran’s oil exports.
Can have a devastating effect on the Iranian economy
Government took in $50 billion from the sale of oil in 2017
Oil and petroleum products made up of 70% of Iran’s total exports
Iranian currency already down 50% since U.S. pulled out of the JCPOA
Country also experiencing considerable unrest – street demonstrations

3. Overview II How much U.S. can reduce Iranian oil exports depends on
Oil markets and
Diplomacy
China is Iran’s largest customer
Situation complicated with
Current trade war
Iranian sanctions evasion
Unilateral U.S. sanctions may encourage other countries to look for mechanisms for conducting trade despite U.S. sanctions in the future

4. Minimizing Market Impacts I
Iran produced 4 million bpd in 2017 – 4% of global production and exported 2.1 million bpd
Taking that much off oil off markets to quickly could have a dramatic impacts on global oil prices
Sanctions were designed with global markets in mind
Instead of forcing countries to immediately eliminate oil imports from Iran,
President can offer countries an exemption to continue importing Iranian oil
Countries must show that they are “significantly” reducing their Iranian oil imports every six months
Successfully implemented by Obama administration

5. Minimizing Market Impacts II
Still some concern today due to
Collapse of Venezuelan production
Instability in Libya and Iraq
Oil prices are up about 50% over last 12 months
Other factors affecting oil markets
Saudi Arabia may increase production to offset Iranian reductions
Increased production likely from U.S., Brazil, and Colombia
To prevent oil price increases Trump administration should peg volume of reductions it seeks to availability of other suppliers.

6. Breaking the Habit I
Second challenge to Trump administration is convincing Iran’s primary customers to quit or lease significantly reduce the volume of their purchases.
Will require diplomacy that engages both
Global companies and
Governments
Obama administration preferred diplomacy
Negotiated with foreign governments to cut imports from Iran
EU agreed to cut all imports from Iran
China, India, Japan, Turkey and South Korea all agreed to reduce their purchases in exchange for exemptions.

7. Breaking the Habit II
Because South Korea and Japan will need U.S. support in countering North Korea and an increasingly assertive China, likely to begin reducing Iranian oil imports
Situation different in Europe where opposition to U.S. withdrawing from JCPOA – unlikely to cooperate much
Trump officials likely to have greater success with individual European companies.
Major importers are
Italian: ENI and Saras
Spanish: Repsol
French: Total
Greek: Hellenic Petroleum

8. Breaking the Habit III All these companies
Depend on access to U.S. dollar financing
Global insurance markets and
U.S. suppliers
Several have significant operations in the U.S.