The Trump administration has introduced many restrictions targeted at Iran’s oil exports, aiming to suffocate the country’s economy and forcing the government to halt its nuclear program and funding of terror. However, eight countries have been allowed to continue their purchase of Iranian oil.
Sanctions and exemptions
“Our objective is to starve the Iranian regime of the revenue it uses to fund violent and destabilizing activities throughout the Middle East and indeed around the world… The Iranian regime has a choice. It can either do a 180-degree turn from its outlaw course of action and act like a normal country, or it can see its economy crumble… We hope a new agreement with Iran is possible,” Secretary of State Mike Pompeo said in a news conference. (USA Today)
Fifty Iranian banks and other major organizations, including the country’s national oil company, have now been added to the list of blacklisted entities by the U.S. This is expected to curb Iran’s economy as the organizations find it difficult to trade with the international community. If any company or country evades U.S. sanctions and trades with the blacklisted entities, severe penalties can be imposed.
The announcement also came with a surprise — eight countries were exempt from the sanctions. China, India, Japan, South Korea, Taiwan, Turkey, Italy, and Greece can continue buying oil from Iran with no risk of suffering U.S. penalties. Given that these eight nations account for nearly 75 percent of Iran’s oil exports, critics of Trump have argued that the new sanctions are not tough enough. However, there is a good reason for the exemptions — to keep oil prices from blowing up.
Oil price control
International oil prices have decreased since hitting US$86 per barrel in October, trading around US$65 per barrel right now. This has shocked many trading firms that were expecting oil to hit US$100 per barrel. Talks in the trading community pointed toward an impending price control policy by the Organization of Petroleum Exporting Countries (OPEC).
This irked President Trump who argued that oil prices, instead of going higher, should reflect true market conditions and must move lower. “Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” Trump had tweeted.
However, OPEC nations are expected to meet in Vienna in December to decide on reducing oil production. Market experts predict that global oil output might be slashed by as much as 1.4 million barrels per day to keep prices within a range desired by OPEC.
“I would put a production cut as being a high likelihood here, and that gets you out [of the current price environment]… Historically, you bounce right back to where you were before. Our target for the first quarter this year  is $75 a barrel on Brent,” Jeff Currie, head of commodity research at Goldman Sachs, said to CNBC.
Banning the eight biggest buyers of Iranian oil under such circumstances would not turn out beneficial as these nations will look for alternative sources for oil. Such a development would end up driving up oil prices. This is the reason why the Trump administration has exempted the countries for now. However, the exemptions will only be valid for 180 days, after which the U.S. will review the policy in accordance with market conditions.