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Companies who buy Iranian crude oil must completely cut those exports by the start of November or else they will face powerful U.S. sanctions, a senior State Department official told reporters on Tuesday.
The State Department has conveyed that message to European diplomats in recent talks, the official said. The Trump administration has not yet held talks with China, India or Turkey about their purchases of Iranian crude yet, but it intends to pressure them to entirely cut their imports under threat of sanctions, the official added.
Oil prices spiked following the announcement, which indicates that the Trump administration will not allow countries to gradually phase out Iranian crude exports over many months, as the Obama White House allowed. The hardline approach comes at a time when oil markets are finely balanced and crude prices have recently hit 3½-year highs.
Iran, OPEC's second biggest oil producer, exports more than 2 million barrels a day. OPEC and other oil producers including Russia agreed last week to ease production caps that have been in place for 18 months in order to prevent prices from spiking as Venezuela's output continues to sink and the U.S. sanctions on Iran's exports loom.
President Donald Trump withdrew the United States from the Iran nuclear deal in May to pursue a maximum pressure campaign. At the time, his administration gave foreign companies either 90 or 180 days to wind down their business with Iranian counterparts, depending on the type of commercial activity.
A crucial question was whether the Trump administration would follow the model President Barack Obama put in place. His administration asked buyers to cut their imports of Iranian crude by 20 percent every 180 days.
If Trump followed the same model, that could have pushed the impact into the first half of 2019, according to RBC Capital Markets. But the State Department confirmed on Tuesday that Iranian crude buyers should be reducing purchases now, with the goal of zeroing out their purchases by Nov. 4, the 180-day mark from the U.S. Iran nuclear deal pullout and renewal of sanctions.
"That is why we've offered this window since May 8, as sort of a drawdown period," the senior State Department official said.
The United States was able to quickly cut Iran's shipments under Obama, largely because it had the support of its European allies. European countries imposed their own sanctions on Iranian crude exports, which wiped out the Continent's purchases in about six months.
In contrast, Britain, France, Germany and the wider European Union have voiced strong opposition to Trump's pullout and put in place measures designed to protect their companies from so-called secondary sanctions. Those secondary sanctions punish companies that engaged in sanctioned business with Iranian entities, threatening to lock them out of the massive U.S. market and isolate them from the international financial system.
This is a breaking news story. Please check back for updates.
