U.S. Seeks to Squeeze Shipping, Metals in Iran Sanctions Bid

By Nick Wadhams

The Trump administration plans to strengthen enforcement of Iran sanctions now that it’s driven oil exports down to unprecedented lows, with a plan to increase pressure on global shippers, Chinese state-owned enterprises and exporters of raw materials used in metal production.

The initiatives, described by two U.S. officials familiar with the situation and confirmed by outside analysts aware of the administration’s plans, mark the next phase of President Donald Trump’s bid to squeeze Iran’s economy so hard that the government has no choice but to negotiate new limits on its nuclear and ballistic-missile programs.

Asked about the new moves, Brian Hook, the State Department’s Iran envoy, said in a statement Tuesday that the U.S. is now turning to “all remaining sources of export revenue, including from petrochemicals and metals that are subject to U.S. sanctions.”

At the center of the administration plan, which hasn’t been previously reported, will be guidance issued via the State and Treasury Departments warning ship insurers, banks, charter companies, port owners, crews and captains that they all face sanctions exposure if they can’t account for the legitimacy of the cargoes they carry.

Despite an array of U.S. sanctions since Trump withdrew from the Iran nuclear deal in 2018, Tehran has refused to buckle to American demands for a more comprehensive deal and has moved forward with efforts to enrich uranium. At the same time, President Hassan Rouhani has confronted street protests against price increases and corruption that has left his government cornered politically, potentially benefiting hard-liners even more opposed to Washington.

One element of the new U.S. effort will focus on the automatic identification system used by ships, according to the people. The administration will demand that insurers and ship owners pay closer attention to when ship transponders are turned on and off, and steer clear of doing business with vessels with questionable histories.

The enforcement effort amounts to a renewed bid to overhaul the often shadowy world of global shipping, in which the true owners of ships are easily disguised, vessels fly under the flags of countries that rarely punish them for wrongdoing and insurers and banks turn a blind eye to illicit behavior.

It also aims to close one of the most common means of avoiding sanctions: the ship-to-ship transfers at sea of crude oil, refined petroleum products and bulk goods.

“The U.S., in particular, has started monitoring what these tankers are up to much more carefully,” Hugh Griffiths, the former head of the United Nations panel overseeing sanctions on North Korea, said in an interview. “The main means by which sanctions are being evaded, to the tune of hundreds of millions of dollars in each incident, is through a ship-to-ship transfer in which the AIS is switched off.”

Many of the initiatives planned by the U.S. echo recommendations spelled out in Griffiths’s report from March that highlighted sanctions-busting by North Korea, chiefly through ship-to-ship transfers.

The administration sent a powerful signal to the shipping industry, as well as nations that help Iran evade restrictions, when it imposed sanctions against the Dalian units of China COSCO Shipping Corp. in September. That move led to increases in the cost of transporting oil globally.

One administration official said that should be taken as a signal that the U.S. is willing to target other Chinese state-owned enterprises, including those that operate or lease out terminals and pipelines.

The U.S. is telling ship owners to protect themselves during ship-to-ship transfers by taking photographs with their mobile phones of the crew of the other ship. That would help expose the identity of any potential sanctions violators with whom they unknowingly do business.

The administration is also telling players in the maritime sector that they should review guidance issued in connection with North Korea and assume it also applies to Iran.

“It’s been a huge wake-up call for the shipping industry, which has been scrambling and rates are still escalated,” said Elizabeth Rosenberg, a former Treasury official who’s now a senior fellow at the Center for a New American Security in Washington. At the same time, she said the U.S. has also sought to clarify to shippers that there are limits to the sanctions and they won’t be at risk if they avoid Iran-related business.

“The Treasury Department has gone to great lengths to explain the limitations of exposure,” Rosenberg said. “It serves the purposes of Iran hard-liners that this is vastly more aggressive, but that’s not entirely true.”

Another element of the plan is to target exporters of graphite electrodes and needle coke, two key components for steel-making, as Iran shifts its focus away from oil and toward metals in response to sanctions.

“The Iranians use evasive practices, and companies should be protecting their business and reputations through enhanced diligence,” Hook, the Iran envoy, said. “We have a very good idea of the entities and jurisdictions that are skirting our sanctions.”

Oil Cut

Hook displayed his penchant for unconventional approaches to enforcing sanctions earlier this year when he emailed the captain of an Iranian tanker carrying oil to Syria and offered him a multimillion-dollar reward to take the vessel to a port where it could be impounded by the U.S. The captain declined.

The Trump administration says sanctions have cut Iran’s oil exports by more than 2 million barrels a day and pushed oil revenue down by 80%. The new effort has the backing of Iran hawks in the U.S. who have long argued for more measures to limit Iranian revenue, regardless of the source.

“Petrochemicals are a major source of hard currency export revenue to Iran. Given that the oil shipments have dropped so radically, the U.S. is looking for non-oil export revenue,” said Mark Dubowitz, the chief executive of the Washington-based Foundation for Defense of Democracies. “While they’ve been putting sanctions on Iran, the real key is the enforcement piece.”

Dubowitz’s organization has proposed even further restrictions on how Iran spends its money as part of efforts to ensure that a future U.S. administration can’t undo measures imposed by Trump. The organization has submitted a memo to the State and Treasury Departments arguing that Iran should only be allowed to spend money currently sitting in overseas escrow accounts on humanitarian goods.

Photo: IRNA

Trump Team Split Over Iran Oil Waivers as Next Deadline Nears

President Donald Trump’s national security team is deeply divided over whether to let a small group of countries keep buying Iranian oil after a U.S. deadline on sanctions waivers expires in May. Now that fight is getting ugly.

The division—primarily between John Bolton’s National Security Council and Michael Pompeo’s State Department—has led to rising frustration and flared tempers. It’s exposing fault lines over how the president’s most senior advisers approach the Iran issue, according to four people familiar with the debate who asked not to be identified discussing the internal deliberations.

Above the fray, at least for now, is a president who must weigh competing priorities. While Trump wants to make good on his “maximum pressure” campaign against Iran and strong-arm it into meeting U.S. demands—including ending its ballistic missile tests and support for Hezbollah—there’s also concern that squeezing Tehran too much will lead to a spike in oil prices. That could raise gasoline costs for U.S. drivers as the 2020 election approaches.

Favoring a tougher tack, Bolton and his team point out that oil prices remain low—about USD 59 a barrel as of Monday. But that could change quickly depending on production moves by OPEC nations as well as the administration’s separate efforts to choke off Venezuelan oil sales in a bid to push President Nicolas Maduro from office.

“The administration will really be weighing its desire to put the screws further on Iran against its allergy to oil over USD 70 a barrel,” said Meghan O’Sullivan, a former deputy national security adviser now at the Harvard Kennedy School. “It is risky for the administration to think that it can drive a hard policy which contracts the oil supply from both Iran and Venezuela simultaneously.”

A spokesman for the White House National Security Council said agencies are coordinating closely to apply maximum pressure on Iran. A State Department official said the U.S. goal remains to get to zero Iranian oil exports as quickly as possible, adding that the secretary of state alone has the discretion to grant exemptions.

There’s little doubt the U.S. sanctions have pinched Iran: Oil revenue has tumbled, the rial has been battered and shortages of meat, medicine and gasoline are spreading. Iran’s supreme leader this week even called European efforts to sustain trade with Iran outside of U.S. sanctions “a joke.”

Price Spike

Trump has until the first week of May to decide whether to issue new waivers to eight governments—China, India, Japan, Turkey, Italy, Greece, South Korea and Taiwan—that were allowed in November to keep buying Iranian oil without facing penalties. The current speculation is that the biggest buyers of Iranian crude, including China and India, will get waivers again.

But Bolton and officials in the Energy Department argue that it’s time for the administration to make good on its demands to push Iran’s oil exports to zero. Pompeo’s team, led by Iran special representative Brian Hook, caution that a sudden removal of Iranian crude from the market—about 1.1 million barrels a day—would fuel volatility and lead to a price spike.

A key analyst who has advised the White House on its approach said the intensifying squabble underscores just how much more politicized the debate over the waivers has become as the U.S. presidential election in 2020 grows nearer.

“If you think Trump will be a two-term president, you have about six years and you can afford to go more slowly,” said Mark Dubowitz, chief executive officer of the Foundation for Defense of Democracies. “But if you think there’s a risk that he’s a one-term president, then he’s got 21 months left and you want to throw everything you can at the regime.”

Pompeo, a hard-line conservative on most issues, and Treasury Secretary Steven Mnuchin find themselves increasingly isolated from Bolton and their usual allies on Capitol Hill, including Republican Senators Marco Rubio and Tom Cotton, who have argued for the U.S. not to grant any more waivers.

“The Iranian regime uses its petrodollars to fund terrorism and sow chaos throughout the region,” Cotton tweeted on March 18. “Going forward, the proper amount of oil exports from Iran is zero.”

According to two GOP aides familiar with the thinking of Senator James Risch, the chairman of the Senate Foreign Relations Committee, the Idaho Republican believes any new waiver will need “substantial justification” to be granted. Risch also thinks there’s more than enough oil sloshing around global markets to counter the crude removed from Iran, thanks to Saudi Arabia and the U.S., according to the people.

As the debate plays out, Pompeo is also facing pressure from his own ambassadors. According to one of the people, Kay Bailey Hutchison, the U.S. ambassador to NATO, is among several who especially oppose giving Turkey another waiver. They argue that would send the wrong message when the U.S. is pushing NATO allies to cut ties with Tehran.

The debate has moved along enough that Hook and his allies have lost several key supporters who were previously open to the waivers but now believe issuing them sends the wrong signal.

“I’m sympathetic to where Brian Hook and Secretary Pompeo are in striking a balance between zero Iranian oil and global oil prices,” Dubowitz said. “But today’s oil market supports zero. So either you’re running a maximum pressure campaign against Iran or you’re not.”

Photo Credit: Bloomberg