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CERAWeek: Will US extend Iran oil waivers? Q&A with sanctions expert Elizabeth Rosenberg

Houston — When the US reimposed sanctions on Iranian crude in November, it also issued waivers to Iran's top oil buyers, allowing them to continue their imports, while agreeing to some cuts.

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The waivers, known as "significant reduction exemptions" and issued to India, China, Italy, Greece, Japan, South Korea, Taiwan and Turkey, are set to expire in early May. Trump administration officials have not said if these waivers will be extended, modified or dropped completely.

On the sidelines of CERAWeek by IHS Markit, Elizabeth Rosenberg, director of the energy program at the Center for a New American Security and a former senior sanctions adviser at the Treasury Department, spoke with S&P Global Platts about the path forward on Iran sanctions waivers.

PLATTS: How much will oil price be a factor?

ROSENBERG: It matters and it'll matter closer to when they have to make their decision. Whether or not the administration thinks deeply about this issue ... the market will have an expectation that price will matter to this administration. That's what will influence people who are making the market with their trading. In November, the administration did demonstrate some real sensitivity to the pricing in being cautious about how they proceeded and backing off their goal to get to zero. It was special circumstances because that was only days before the [US congressional] midterm elections and the next deadline is not days before the general election. Nevertheless, we are in the cycle for the [2020 congressional and presidential elections]. It's hard to conceive of a president being willing to look in the face a potential price movement from really trying to strangle back on Iranian oil and own that in a period where he's definitely cultivating support for an election.

PLATTS: Is there an oil price level where waivers may be extended or dropped?

ROSENBERG: No, there isn't. Everyone's fine now, I think they would be fine if [oil prices] went higher. There's no way they could have gotten comfortable with the Venezuela measures if they didn't feel like there was headroom in the market. So, there will be headroom for another Iran decision and it really helps that the US is going to add another 1 million b/d of oil this year. So, obviously, there's a grave mismatch going on here and the sanctions are really slowing heavier crudes and the Permian supply is not going to replace that, but it does give a bit of comfort for both the official and unofficial determinations the administration has to make about whether or not the market is well enough supplied to accommodate further supply restrictions from sanctions.

PLATTS: What is your expectation?

ROSENBERG: They will continue to offer significant reduction exemptions to China and India because it would be economically and politically difficult, perhaps impossible, for them to get to zero. India is between a rock and a hard place on US sanctions. They still import several hundred thousand barrels from Iran and, on spec, their refineries want that heavier crude. They've picked up some of the Venezuelan barrels because it will work in their refineries, which makes them the last major source of hard currency for Venezuela. India is now the focal point for the US administration in trying to badger and harass them to back off crude that the United States has restrictions on. However, they have their own elections to think and as a democracy it's particularly difficult for leaders of that country to tell their citizens that the United States is establishing economic and foreign policy for them.

PLATTS: Will we know anything on waivers before the May deadline?

ROSENBERG: Probably nothing of great certainty. Sure, there will be loads of speculation related to that and how the administration will play it. But the best measure for thinking about that decision will be the precedent of the last round. They didn't give a headline number, they didn't give quotas for countries. They also appeared to be in constant negotiation with these countries which may be indicative of the fact that this is really a work in progress the entire time.

PLATTS: What happens if all the waivers are dropped?

ROSENBERG: There is an expectation that there will be a slight trending down, but essentially the status quo. If there was an expectation that it would go utterly to zero, that expectation would reflect the fact that there will be economic penalties that come slamming down on the financial institutions that are involved in payment and also, possibly, companies in this value chain, which may include vessels, ports, shippers, the insurers. That would go over like a load of bricks and have a big economic fallout. We are definitely not baking that into assumptions.

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Jennifer Pedrick, newsdesk@spglobal.com