Oil waivers show Trump may have swallowed a dose of reality on Iran

Oil waivers show Trump may have swallowed a dose of reality on Iran
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Adding to the heat on Iran, the Israeli intelligence service invited leading American news publications to see some of the treasure trove of documents it secretly smuggled out of Iraq a few months back.

The documents are meant to prove that the Iranians had both underreported the extent of their nuclear program and that they were far closer to their ultimate goal of weaponizing their nuclear technology.

Undoubtedly, the Israelis want to ratchet up the pressure on the Trump administration, perhaps fearing the U.S. is
"getting soft" on Iran. Specifically, the Treasury Department has backtracked on its earlier call for complete international boycott and sanction of Iran by November.

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Sensing its inability to get other countries to follow suit, the Trump administration has been signaling that it may extend waivers to some companies or countries. These waivers could be interpreted as reckoning with the reality that some countries will not get to zero Iranian imports, particularly when it comes to Iranian oil.

 

Perhaps the Trump administration is reckoning with the reality that it may be better off getting in front of these diplomatic embarrassments with benevolent acts of waivers.

The other reason for U.S. waivers is the reality that despite the Organization of Petroleum Exporting Countries' (OPEC’s) recent commitment to increase oil production, the members simply do not have the spare capacity to make up for Iran’s contribution to global oil supply.

Keeping oil prices low is clearly important to President TrumpDonald John TrumpChasten Buttigieg: 'I've been dealing with the likes of Rush Limbaugh my entire life' Lawmakers paint different pictures of Trump's 'opportunity zone' program We must not turn our heads from the effects of traumatic brain injuries MORE. After all, Trump has continued to take to Twitter, four times this year alone, calling on OPEC to keep prices low through added supply.

While Trump claims the Saudis have agreed to keep prices low through added supply — though there are conflicting reports on whether the Saudis responded in the affirmative to Trump — the Saudis simply cannot make up for Iran’s supply while also making up the other shortfalls in the market emanating from Venezuela and Libya.

With the global economy projected to grow to nearly 4 percent this year, the demand for oil is likely to increase. Unless President Trump is prepared to tell his base that they will pay more at the pump for squeezing Iran, something will have to give.

This explains why Secretary of Treasury Mnunchin recently reiterated what a spokesperson noted a few weeks ago: Waivers may be given to some countries. Which countries? Well ones that the U.S. simply doesn’t have leverage over or that would love nothing more than to tee off against the United States in a public spat and are large customers of Iranian oil; namely, China, India and Turkey.

As the largest importer of Iranian oil, China is definitely in no mood to acquiesce to Trump’s demands. With all the talk of trade war between China and the United States, the Chinese are certainly not willing to curtail their economic growth to meet U.S. Treasury conditions.

With tariffs and counter-tariffs in the air, publicly denying Treasury directives would certainly complicate U.S.-China relations further, hence the U.S. Treasury is better off seen to be giving China a waiver than having the Chinese stick it to the Americans and circumventing the sanctions.

The Treasury Department is already getting enough heat from the U.S. business community on the damage the trade war with China is causing U.S. producers.

Both India and Turkey, the second- and third-largest importers of Iranian oil are led by populist leaders who will also be less than willing to be seen succumbing to U.S. demands on this.

Moreover, both nations are known to have cheated sanctions against Iran prior to the Joint Comprehensive Plan of Action (JCPOA) and continue to buy Iranian oil. There is no reason they wouldn’t do this again post-JCPOA.

Again, Treasury may find it convenient to provide these two countries waivers as well. While both Korea and Japan are also large customers of Iranian oil, they will likely fall in line with U.S. demands. Both Asian countries have always been eager to please the U.S. government and will follow through on Treasury demands.

So while we see the Trump administration continue to try to push for the complete reimposition of sanctions against Iran, it faces a reality check that waivers are good for oil market supply and for their own tough-talking image.

The Trump administration continues to find out that the world is far more interdependent than it imagined, and it cannot always get its way.

Bessma Momani is a nonresident senior fellow at the Stimson Center and a professor at the Balsillie School of International Affairs and University of Waterloo, Canada.