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International relations

US exempts Japan and 7 others from Iran oil embargo

Big Asian buyers China and India thought to get reprieve, but not EU

A gasoline station in Yokohama, Japan. The energy-poor country has tried to maintain diverse sources of oil.

WASHINGTON/DUBAI -- The U.S. will allow eight jurisdictions to continue buying crude oil from Iran after it reimposes sanctions on the Middle Eastern country, Secretary of State Mike Pompeo confirmed Friday, in a move likely intended to allay the concerns of energy-poor allies and the global oil market.

Pompeo did not name which eight would receive the temporary waiver. But the administration of U.S. President Donald Trump has informed Japan it will receive one, Nikkei learned Friday. Turkey also said it was granted a waiver.

The list also includes South Korea, India and China, though the U.S. is still negotiating terms with Beijing, Bloomberg reported. Washington will continue urging these countries, which rank among the biggest importers of Iranian crude, to cut back.

The European Union as a whole, which has 28 members, will not be exempt, the secretary said.

Tokyo applied for an exemption from the sanctions, concerned they would squeeze Japan's supply of crude. It is crucial for the energy-poor country to maintain diverse sources of oil, and Japanese oil distributors such as JXTG Nippon Oil & Energy plan to resume halted Iranian imports once the exemption becomes official.

Trump's administration previously demanded that all countries completely suspend imports of Iranian crude before the renewed sanctions take effect Monday, aiming to curb Iranian funding for nuclear and missile development. But Japanese companies have yearlong purchase agreements with Iran through March 2019, and would face steep penalties if they back out midyear, a Japanese diplomatic source said.

India, which also has yearly agreements with Iran, also told the U.S. it could not completely cut imports until March.

An Iranian man works at a production platform at the Soroush oil fields south of Tehran. The U.S. says it will exempt eight jurisdictions from its upcoming sanctions on Iran.   © Reuters

Many believed eliminating all crude imports from Iran was virtually impossible anyway, and that Trump made the demand as a tactic to cut shipments by more than under the previous round of sanctions enacted by predecessor Barack Obama in 2012.

Though oil prices are relatively stable, the benchmark West Texas Intermediate crude hit a 46-month high in mid-October. Gasoline prices also are rising, putting an extra strain on American consumers heavily dependent on cars to get around.

Trump had urged Saudi Arabia to boost output to compensate for the shortfall caused by Iran sanctions. But it is unclear whether Riyadh will still cooperate amid the international backlash over the killing of Jamal Khashoggi, a journalist critical of the Saudi regime. Trump likely decided that oil prices could spike if he failed to grant exemptions to certain countries.

The U.S. projects that global oil supply in 2019 will exceed demand. "That creates a much better atmosphere for us to bring remaining nations to zero as quickly as possible," Brian Hook, the U.S. special representative for Iran, said on Friday. "Our goal remains getting countries to zero imports of Iranian oil," he told reporters.

Meanwhile, Iranian state media on Friday quoted Deputy Oil Minister Ali Kardor as saying that the U.S. waivers "show that the markets need Iran's oil, and that it cannot be eliminated from the market." The country is working to secure buyers even after the sanctions take effect, such as by offering discounts to certain clients.

European companies are scrambling to downsize or even shut down operations in Iran, unwilling to risk their access to the U.S. market and financial system. "If we are forced to decide between the U.S. and Iran, we have no choice but to choose the former," a European corporate official said.

The new American sanctions cover not only oil, but also a range of other fields like finance and insurance. The EU hopes businesses will stay in Iran to encourage Tehran to remain part of the 2015 nuclear deal, since turmoil in the Middle East could easily threaten European security. The EU even enacted a blocking regulation in August barring European individuals and companies from abiding by U.S. sanctions.

But the exodus continues. Volkswagen will essentially withdraw from Iran, Bloomberg reported in September, while British Airways, Air France and other European flag carriers are canceling flights to and from the country.

The EU is readying a new mechanism to settle transactions with Iran that lets European companies avoid American sanctions. The special-purpose vehicle likely will barter foreign products for Iranian oil, instead of payments using the U.S. dollar.

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