Are increasing Iranian oil exports undermining sanctions?

Sam RatnerSam Ratner
examines claims by opponents of the Joint Plan of Action that Iran's rising oil exports represent the crumbling of the U.S. sanctions architecture against Iran. The claims, he argues, are misleading, but the Obama administration's claim that exports will remain flat is still a political misstep.

By Sam Ratner

According to the International Energy Agency (IEA), which released new data on Iran’s oil exports last week, Iran’s export totals have increased from 1.15 million barrels per day (bpd) in December to 1.32 million bpd in January. Opponents of the interim deal have seized upon this increase, arguing that the sanctions regime the Obama administration promised to uphold is beginning to unravel. Already, Mark Dubowitz of the Foundation for the Defense of Democracies has said that, due to crude exports, “Iran is gaining important negotiating leverage, while the United States' leverage is being diminished.”

Fortunately, this assertion is misleading. Oil sanctions against Iran remain robust, and the IEA numbers fall well within what should be expected under the current sanctions architecture. However, the Obama administration risks incurring a domestic political cost because it claimed that Iranian oil exports would remain under 1 million bpd during the duration of the Joint Plan of Action (JPA).

Does the JPA limit Iranian oil exports?

In a background briefing on the implementation of the JPA, a senior administration official said that, under the JPA, “Iran’s oil exports will remain steady at their current level of around 1 million barrels per day.” That remark was interpreted by some in the press to mean that Iran had agreed in the JPA to a hard cap on its exports, maintaining them at November levels.

Essar Oil refinery
October 28, 2008 - The Essar Oil refinery at Vadinar, India.(Abhisek Sarda, via Flickr)

That interpretation, however, is incorrect. The text of the JPA places no hard limit on Iran’s oil exports. Instead, it creates something of a sanctions truce around Iranian oil. Specifically, the P5+1 pledges to “pause efforts to further reduce Iran’s crude oil sales, enabling Iran’s current customers to purchase their current average amounts of crude oil.” [emphasis added] In layman’s terms, sanctions against Iranian oil will remain in place for the duration of the JPA, but the P5+1 will stop trying to get Iran’s remaining customers to buy even less Iranian oil than they already do. Iran, therefore, is free to sell oil at whatever levels were agreed to between the U.S. and Iranian oil customers under the preexisting sanctions regime.

Yet the difference between the administration’s promised 1 million bpd and the IEA’s numbers poses a political issue. Administration officials are expected to face tough questions on the export numbers in a closed Congressional briefing, and questions in open hearings are sure to follow. The Obama administration would do well to step back from its misleading claim that Iranian crude exports will hold steady near 1 million bpd before controversy about the claim obscures its success in maintaining the overall health of the sanctions regime under the JPA. The reality is that exports may well continue to rise in the short term, but in a way that falls within, rather than undermines, the existing sanctions infrastructure.

Existing sanctions architecture

The IEA ascribes the increase in January imports of Iranian crude to three buyers: India, Japan, and China. These three countries—along with Iran’s other major oil buyers, South Korea, Taiwan, and Turkey—received waivers from the State Department exempting them from U.S. sanctions against the import of Iranian oil. In exchange, each waiver country pledges to reduce its consumption of Iranian oil within a certain timeframe. The strength of the sanctions architecture depends on the willingness of waiver countries to make such reductions to retain their privileged status. Thus far, despite short-term increases in imports of Iranian oil, waiver countries have stayed within their pledged reductions and made no concrete moves away from the waiver system. In fact, some countries have already announced their reduction pledges for the next fiscal year.

Waiver countries have had the flexibility to increase their imports in recent months because, previous to the JPA, they were buying at a rate even lower than their pledged reductions. Having driven their average barrels per day well below what is necessary to have their waivers renewed, they are able to buy at a higher level until the end of the fiscal year without endangering their relationship to the American sanctions regime.

India is a prime example. India promised last year to reduce its Iranian imports by 15%, to an average of 220,000 bpd, in the year ending March 31, 2014. However, through December 2013, India had averaged only 195,600 bpd of imported Iranian oil. In January, under the JPA, India’s import levels jumped 50,000 bpd to roughly 240,000 bpd. If it maintains that level through March, India will still come in well under its pledged 220,000 bpd average for the year.

Even more important, India has already begun to signal its commitment to the reductions-for-waivers system for the coming fiscal year. On February 10, Essar Oil, India’s largest importer of Iranian crude, announced that it will cut overall imports 12-13% in FY 2014-15, saying that it is “adhering to norms as advised by the ministry of petroleum and natural gas.” That cut is likely to be a necessary prerequisite for India to receive more waivers going forward.

The bottom line

It is possible that Iranian oil exports will climb in the coming months until they meet the previously agreed upon quotas negotiated between the U.S. and Iran’s major clients. Yet this is not evidence that the sanctions regime is collapsing.  Oil sanctions remain in place, and Iran’s most important trading partners continue to abide by them. This is an important victory in maintaining pressure on Iran during nuclear negotiations.

Sam Ratner is the project coordinator for Iran Matters. He tweets at @samratner.