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Oil price crash prompts tougher US sanctions push on Iran, Venezuela flows: analysts


Some administration officials see sanctions opportunities

Harder line on Iran may appease Saudis

US eyeing expiration of Chevron's Venezuela waiver

Rather than compelling the Trump administration to relax its oil sanctions regime, the global coronavirus pandemic and oil price crash may be motivating an even more aggressive US oil sanctions policy, particularly in stopping petroleum flows out of Venezuela and Iran, analysts said this week.

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"Something that's really interesting is how much has not changed," said Elizabeth Rosenberg, director of the energy program at the Center for a New American Security and a former senior sanctions adviser at the Department of the Treasury. "In a collapsed oil market there's every additional opportunity for sanctions hawks to layer it on. In fact, it's in the interest of US producers who are grasping for a lifeline."

Paul Sheldon, chief geopolitical advisor at S&P Global Platts Analytics, said the oil price collapse may not trigger a "notable shift" in US sanctions policies, pointing to the State Department's announcement last week of new sanctions on companies out of South Africa, Hong Kong and China for petrochemicals trade with Iran. The spread of coronavirus may force US foreign policy to a secondary issue, Sheldon said.

"At the margin, this may preserve the status quo of enforcing and toughening existing penalties, while relegating any major new sanctions initiatives to the back-burner," Sheldon said.

Still, US Treasury and State Department officials plan to continue to aggressively enforce sanctions on petroleum flows out of Iran, both as a way to keep some supply off the market amid low prices and to appease Saudi officials, as the US lobbies the OPEC kingdom for action to stabilize the global market, analysts said.

"I would like to think that the basis for sanctions is a perceived national security threat because that's what the law dictates, not alliance politics or industrial policy," Rosenberg said. "But these are strange times ... and many people's good judgement may be impaired by the avalanche of very bad news about human health and economic prospects."

David Goldwyn, president of Goldwyn Global Strategies and a former special envoy and coordinator for international energy affairs at State, said the administration is still deliberating it sanctions policy path forward during the coronavirus outbreak. But he said a harder line against Venezuela and Iran could have consequences.

"Given the decline in crude oil prices, the economics of producing oil have already reduced Venezuela's production to subsistence levels and Iran's cash income from crude production to near zero," Goldwyn said. "Imposing additional sanctions are unnecessary and would risk attributing direct blame to the administration for aggravating an already deteriorating humanitarian situation."

In terms of a more assertive policy, the US is expected to continue to target ties between Russian state oil company Rosneft and PDVSA, Venezuela's state oil company. Treasury has already sanctioned two Swiss affiliates of Rosneft, Rosneft Trading and TNK Trading International, for Venezuelan crude oil trades. The Trump administration is considering further sanctions on additional Rosneft subsidiaries and on the larger ties between Rosneft and the Maduro regime, according to sources familiar with the administration's plans.

Trump administration officials are also strongly considering allowing a waiver, known as General License 8, to expire on April 22 as a way to increase pressure on Venezuela's Maduro regime. The waiver, which was given a three-month extension for the third time in January, allows Chevron and four US oil services companies to continue certain work with Venezuela's state oil company PDVSA, outside of US sanctions.

"Obviously, curtailing Venezuelan production and exports now by sanctioning Russia is not as systemically dangerous as it was six weeks ago," Richard Nephew, the principal deputy coordinator for sanctions policy at the US State Department during the Obama administration, said this week. "So ... that may give them more of a sense of opportunity."

Ray Fohr, a Chevron spokesman, said the company remained hopeful that the waiver would be renewed.

"If Chevron is forced to leave Venezuela, non-US companies will fill the void and oil production will continue," Fohr said in an emailed statement.

Sources said they expect the US will again extend a waiver allowing Iraq to import Iranian electricity and natural gas despite US sanctions before the current waiver expires late this month.