Obama's oil sanctions against Iran aren't working

Will U.S. leverage in nuclear talks suffer?

An Iranian crude oil supertanker
(Image credit: (TIM CHONG/Reuters/Corbis))

The Obama administration may be betting that sanctions on Iranian oil exports force the country to make concessions over its nuclear program. But Iran is now exporting more oil than at any time since mid-2012, raising doubts about how effective that sanctions strategy has been.

Iran's crude oil exports jumped to 1.65 million barrels per day in February, thanks to increased purchases by China, India, and South Korea, according to revised data released Friday by the International Energy Agency. That is well above the informal cap of about one million barrels per day set by the administration as part of the limited sanctions relief given to Tehran during the six-month interim deal to hold nuclear negotiations.

The IEA said that preliminary data showed that Iran's oil exports dropped to about one million barrels a day in March, "but that figure will likely be revised upwards closer to February levels upon receipt of more complete data." In other words, Iran's oil exports appear to have jumped and stayed consistently higher since the announcement late last year of the interim deal.

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Iran's oil exports are a key source of government revenue; U.S. officials believe that Iran agreed to negotiate in large part because sanctions placed on its energy and financial sectors since 2012 had poleaxed Iran's economy. While Iran's economy is still in dire straits, the International Monetary Fund said this month that Iran could post modest economic growth between now and next year.

Critics of the limited sanctions relief offered to Iran as part of the interim deal say that the higher-than-expected oil exports are a shot in the arm for Tehran and, by shoring up Iran's economy, could further undermine the already troubled nuclear talks. EU foreign affairs chief Catherine Ashton and Iranian foreign minister Mohammed Javad Zarif said Wednesday that "a lot of intensive work will be required to overcome the differences" between the two sides, who will meet again next month in Vienna.

"This enhances Iranian nuclear negotiating leverage and makes it more difficult to conclude a diplomatic deal that dismantles Iran's military-nuclear program," said Mark Dubowitz, the executive director of Foundation for the Defense of Democracies, a group that advocates tougher sanctions on Iran.

State Department spokesperson Jen Psaki said Friday that the reported amounts of crude oil that Iran sold refers to volume over a six-month period, and that over time the amount will average out to one million barrels. "Month-to-month variability is normal in oil markets," Psaki said, "and we still expect and anticipate...that this will average out over a six-month period."

Since 2012, the U.S. and Europe have sought to hamstring Iran's economy by limiting the amount of oil it can export. In general, the sanctions policy has been successful, pushing Iran's exports down from almost 2.5 million barrels per day to as low as 800,000 barrels a day last fall. As part of the interim nuclear deal — and in the teeth of heated opposition in Congress — the U.S. halted further cuts to Iranian exports, but said that Iran could not sell additional volumes of oil while talks continue.

But the latest IEA figures show that China and India, in particular, continue to be large buyers of Iranian oil despite U.S. efforts to get both countries to curb their consumption. The IEA said that China likely imported about 500,000 barrels of Iranian oil a day in the first quarter of 2014, compared with about 430,000 barrels a day last year.

India's purchases of Iranian oil have also jumped sharply, despite both U.S. diplomatic arm-twisting and Indian pledges to curtail imports. The IEA said that India's first-quarter Iranian oil imports were about 340,000 barrels a day compared with just 190,000 barrels a day last year.

To be sure, exact figures on Iran's oil exports are hard to nail down exactly, and fluctuate from month to month. The IEA's own revisions each month to its estimates of Iranian oil exports underscore how tricky it is to paint an accurate picture of how much oil Iran is selling and to whom. One problem, the IEA says, is that many Iranian oil tankers don't carry electronic devices that could track their movements.

Obama administration officials say they don't put much stock on monthly estimates, and that they are focused on keeping Iran's exports of crude oil at an average level of about one million barrels per day during the six-month period of negotiations — which Iran appears to be exceeding.

Additionally, administration officials note that the IEA estimates of Iran's oil exports can present a slightly distorted picture. That's because the IEA tallies regular crude oil and lighter so-called condensates together in its oil figures; U.S. sanctions are only directed at regular crude oil. An administration official said in an interview last month that the United States is "comfortable" with the level of Iranian crude exports; an administration official reiterated that view today.

The State Department did not respond to a request for comment.

The latest apparent rebound in Iranian oil exports comes as Moscow is challenging the U.S.-led effort to maintain pressure on Iran. Since the beginning of this year, Russia and Iran have reportedly been in talks regarding an oil-for-goods barter deal that could bring Iran as much as $20 billion in exchange for about 500,000 barrels of oil per day.

Obama administration officials, including Secretary of State John Kerry and Treasury Secretary Jack Lew, have repeatedly stressed that such a deal, if it were finalized, could trigger U.S. sanctions on Russia. This week, leading lawmakers, including Sens. Robert Menendez (D.-NJ) and Mark Kirk (D.-Ill.), the authors of key sanctions legislation, urged President Barack Obama to "put Iran on notice" if it tries to evade limits on energy sales.

Anton Siluanov, Russia's finance minister, rebuffed those warnings Friday, saying that Russia only acknowledges United Nations sanctions on Iran, not U.S. restrictions on Iran's oil exports.

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