Iran is rushing to push out its oil exports after a US decision to reinstate sanctions brought Tehran’s limited window of access to an economic lifeline to an abrupt close.
Recent data from the maritime insurance company TankerTrackers showed Iran shipped out at least 10 million barrels of crude and fuel oil after the US rescinded General Licence X on Tuesday. The waiver, which came out of a June 17 agreement between Washington and Tehran, allowed Iran to sell oil exports for 60 days.
Among 14 other points, the agreement included language that provided steps to reopen the Strait of Hormuz, the artery for one fifth of the global oil supply.
After Iran attacked three vessels in the Strait of Hormuz this week, a frustrated President Donald Trump declared the fragile ceasefire over. The Treasury Department issued a new notice – General Licence X1 – which rescinded the previous waiver and instituted a 10-day wind-down period.
With this effective flick of a switch, Iran’s economic lifeline was cut.
Alex Zerden, a former Treasury official and founder of Capitol Peak Strategies, said the sanctions reflect the political dynamics at play.
“It appears that the President was frustrated with the lack of progress on the diplomatic side and revoked the sanctions licence as a tool to demonstrate his displeasure and try to change Iranian calculus and decision making,” he said.
Mr Trump on Friday reiterated the ceasefire was over as he agreed to continue talks with Iran. He has also threatened to reimpose a naval blockade, which was lifted as part of the June agreement.
Carrot and stick
When the US imposed is naval blockade on Iranian ports on the Strait of Hormuz in April, it added a new dimension to the Trump administration's economic pressure campaign. By bringing military force to back up its sanctions, it prevented any buyer from accessing Iranian crude and targeted Iran's most significant purchaser: China.
"The biggest shift we saw during the war was the imposition of a blockade [and] the physical enforcement of the sanctions program," said Chris Kennedy, lead for economic statecraft at Bloomberg Economics.
No Iranian tanker exited the US naval blockade zone while it was in effect, according to Kpler data. Iran's exports fell 329,000 barrels per day in May, a 78 per cent decrease from April. The energy intelligence firm said the blockade would end up costing Iran a delayed $200-$250 million per day.
Included in the June agreement between Washington and Tehran was a $300 billion investment fund for the reconstruction and redevelopment of Iran. The mechanism for its implementation was to be finalised as part of a final deal within 60 days of the interim agreement being signed.
"It's the carrot of the $300 billion, and the stick of the sanctions," said Josh Kram, managing director of Westbrook Global Advisory.
The fund was designed to trigger investment in Iran, which has been cut off from western financial institutions for years and whose economy suffers from high inflation and a weakened currency.
Market credibility
As Washington leaves the door open for continued diplomacy with Tehran, Mr Zerden questioned the value of licensing if conditions abruptly change, contrasting this episode with policy towards Syria, where the US has methodically dismantled its sanctions architecture following the country's political transformation.
And given the brevity with which the window was open to engage in business with previously sanctioned firms in Iran, it remains unclear whether US companies were in a rush to operate.
"What happened this week highlights their unpredictability, and that itself will probably keep a lot of potential customers at bay for now," said Farhad Alavi, managing partner of Akrivis Law Group.
TankerTrackers estimated that if the blockade were to resume today, Iran would be stuck with roughly 50 million barrels of crude oil and refined products.
Traffic in the strait has been drying up since US sanctions were reinstated. Only 22 ships passed through the waterway on Friday, less than half of the traffic that passed through it the day General Licence X1 was issued, Kpler data showed.
"You could have bought the oil when it's legal. It could be still at sea in transit, and by the time it arrives at the harbour in Europe or the US, it would become illegal again," said Stephen J Fallon, founder of DBM Consulting.
This lack of credibility in issuing waivers goes beyond the energy sector and applies to Iran, which has been disconnected from US trade for years while at the same time gradually winding down business with Europe.
"The more unpredictability there is in general licences, the more there will be an expectation for permanence on the part of private-sector actors before they start moving into certain territory," Mr Alavi said.
