New US Sanctions On Iran Aren't Likely To Have A Significant Impact

With France, the United Kingdom and Germany vowing to stay in the Iran nuclear deal, reimposing US sanctions may not be enough to bring Iran to the bargaining table.

Despite President Donald Trump’s dramatic speech on Tuesday announcing that the US was withdrawing from the Iran nuclear deal, it was not clear that the imposition of US sanctions will have a significant effect on Iran's main source of income, oil sales.

Previous US sanctions had little impact on Iran until the Obama administration got international buy-in from major purchasers of Iranian oil in Europe and Asia. This time, however, it's unlikely that any will join in Trump's new sanctions regime.

France, Germany and the UK vowed in a joint statement to stick with the deal. Iran also said that it would stay in the deal, for now.

Without international support, the reimposition of US sanctions alone is likely to reduce Iranian oil exports by only 200,000 to 300,000 barrels a day, according to a research note by RBC Capital Markets analysts shared with BuzzFeed News. Iran is the world's fifth-largest producer of crude oil, with daily sales of 2.5 million barrels.

Some other analysts said that number could be as much as 500,000 barrels per day. But even so, that is a far cry from 1 million to 1.5 million barrels that were taken off the market daily under the Obama administration when the US, European allies and the United Nations presented a united front to bring Iran to the negotiating table. In 2014, before the deal, Iranian oil sales totaled approximately 1.1 million daily.

RBC said it's possible that the US sanctions might discourage some European companies from investing in Iran and cut back on purchases. But other countries such as India, Turkey and China are not likely to yield to the same pressure.

“We’re getting a real live experiment of how US secondary sanctions work — last time we had a UN structure, partners who were collaborating with us, and a narrative that everyone agreed with,” Richard Nephew, a former State Department official who headed the sanctions team during the Iran negotiations and is now at Columbia University's Center on Global Energy Policy, told BuzzFeed News.

Nephew called the US reimposition of sanctions the "worst of all worlds" — just enough to be disruptive politically and economically but not enough to bring Iran to the negotiating table — "and without any clear sense of what the plan is...going forward."

Still, he predicted that the US won't have no impact. “When you are on one side and on the other side are (just) Iran, Cuba and Venezuela, you’re doing all right,” he said. “Now we’re the lone wolf here. We’re still going to have an impact though — we’re still a $20 trillion lone wolf.”

How much impact the US sanctions have will depend on how willing the Trump administration is to force others to abide by them. The US could block foreign companies from accessing the US market unless they comply with the sanctions through so-called “secondary sanctions.” The Treasury Department could sanction foreign financial institutions that deal with the Central Bank of Iran unless their home country agrees to “significantly reduce” Iranian oil purchases.

If the Trump administration adopts the Obama administration’s playbook, this would mean reducing Iranian crude imports by 20% every six months, after a 180-day grace period. If they were strictly imposed in such a way that some European companies stopped doing business with Iran, the impact could be great.

But risk analysts and energy industry insiders also warned that there could be an economic cost for the US. Oil prices shot up in past weeks as the White House indicated Trump was going to withdraw from the deal, with crude oil topping $70 a barrel for the first time in four years. Gasoline prices are averaging about 50 cents a gallon more than a year ago, and could rise another 25 cents.

Trump’s decision “also entails some economic policy challenges in the form of potentially higher oil prices,” the RBC Capital Markets analysts wrote. “The White House will likely look to its key Middle Eastern ally, Saudi Arabia, to help fill the supply gap and prevent a price spike,” it said, although “their willingness to fill the gap cannot simply be assumed.”

Withdrawing from the deal also could prove costly to US companies and workers.

Boeing had announced agreements with Iranian airlines to sell $20 billion of aircraft. When the deals were announced in December 2016, the company declared that the sale of 50 Boeing 737 planes and 30 Boeing 777 aircraft would “support nearly 100,000 US jobs.”

"Following today's announcement, we will consult with the U.S. government on next steps," Boeing said in a statement on Tuesday.

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