Ratcheting up the pressure on Iran has led some experts to express concern that such measures are moving the U.S. toward a war footing with Iran.
We spoke with Cipher Brief Expert and former National Mission Manager for Iran at ODNI, Norm Roule about what this means and what to expect longer term.
The Cipher Brief: Give us a brief description of what this decision means.
Roule: Let me begin with what exactly has changed. Eight countries (or seven countries in a jurisdiction depending on how you describe Taiwan) have been told they have to end their oil purchases with Iran or face U.S. sanctions. Broad compliance is likely. There are a number of estimates as to how much oil Iran currently exports as compared to before the U.S. withdrawal from the Iran nuclear deal. Monthly estimates vary with the season and my sense is that some countries have tried to accelerate purchases in recent months in anticipation of this new decision, but Iran is now producing about a million barrels of oil less a day as compared to a year ago. The Trump administration’s decision – if fully implemented – would leave only smuggling and some illicit ship-to-ship sales, neither of which will be meaningful in sustaining Iran’s economy.
Norm Roule, Former National Mission Manager for Iran
This is a significant loss to Tehran in that the regime receives about 40% of its revenue from oil. Prior to the resumption of sanctions, Iran’s oil earning brought in about 50 billion dollars a year and this figure has gradually dwindled since the U.S. left the Iran nuclear deal.
The administration’s critics’ concerns over a price spike in the wake of the U.S. withdrawal have proven to be incorrect. Oil prices have not spiked; both Brent and West Texas Intermediate have stabilized following the announcement. Thus far, most countries have largely complied with Washington’s insistence that they end purchases of Iranian oil. What makes this interesting is the spectrum of countries involved with these purchases. Some are close U.S. partners, while others – such as China and Turkey – have a history of opposing U.S. pressure on Iran. The most significant purchasers of Iranian oil at this point are China, South Korea, and India.
The Cipher Brief: What does this announcement tell us about U.S. policy?
Roule: First, the President has long called for an end to oil purchases from Iran unless Iran curtailed its missile activity and proliferation, regional adventurism, support for terrorism, and detention of U.S. citizens. Whatever one’s views on this decision, he fulfilled this promise and Iran made it easier to do so because of its continued bad behavior in all of these areas. Second, the Administration appears to have put a lot of work into preparing for this decision. There have been phone calls and conversations with Saudi and Emirati officials in the past two weeks as well as discussions with Turkey. This move also underscores the effective working relationship between the administration, Riyadh, and Abu Dhabi. My sense is that the latter capitals have been quietly reaching out to current importers of Iranian oil to make this transition easier.
The Cipher Brief: How will OPEC play into this?
Roule: The Saudis do have the capacity to go to 12 million barrels a day, although that will likely put some stress on their production system. However, any production increase by Riyadh will complicate its position in the June OPEC meeting, where it likely planned to insist that OPEC members maintain current production levels in order to sustain prices. Saudi Arabia and Russia remain the only real swing producers and have dominated recent OPEC decision making, so perhaps concerns regarding OPEC aren’t as important as they were in the past. The continuing chaos in Venezuela and General Khalifa Hafter’s moves in Libya have not yet changed the oil supply picture. It is likely that events in Venezuela have been baked into analysts' expectations, and the recent engagement between the administration and Haftar may have involved assurances that he would not disrupt Libya’s oil production.
Finally, Secretary Pompeo announced that the U.S. would increase its oil production as well to offset any losses from Iran. This statement underscores how dramatically the oil production picture has changed in recent years.
The Cipher Brief: How is Tehran likely to respond to this decision?
Roule: We should anticipate a spike in rhetoric from Iran and Lebanese Hezbollah. Already the head of the IRGC has said that if they are prevented from using the Strait of Hormuz, they will close it. And no one is talking about a blockade on Iran. The Straight carries about a fifth of the world's oil.
Norm Roule, Former National Mission Manager for Iran, ODNI
Iran will likely avoid any steps which would provoke a conventional conflict but might well use surrogates to undertake terrorist attacks which are attributable to, but deniable by Tehran. I also expect more cyberattacks against the U.S., Saudi Arabia, the Emirates, and Bahrain. I wouldn't be surprised if the administration happened to be thinking about what it would do in response to an Iranian cyberattack.
Looking more broadly, Lebanon should be watched closely. Pretty much every year around this time, there are rumors of an Israeli-Lebanese Hezbollah conflict. However, the strategic drivers don't exist on either side to seek such a conflict and sanctions have begun to hit Hezbollah’s budget hard. Nonetheless, it wouldn’t surprise me if Hezbollah Chief Hassan Nasrallah raises this issue again to put pressure on the international community to offer Iran concessions.
The Cipher Brief: Will Iran withdraw from JCPOA?
Roule: There is no evidence this will happen in the near term, but the likelihood grows every day. Tehran will want to see the reaction of Europe and Asia. If Iran’s leaders do decide to withdraw, I would expect that to begin with a spike in nuclear-related rhetoric, less cooperation with the IAEA, and maybe the introduction of small numbers of advanced centrifuges to put diplomatic pressure on the Europeans.
The Cipher Brief: What about Iran’s long-term strategy?
Roule: I continue to see no evidence that Iran’s leaders feel compelled to make concessions to the U.S. at present and they are probably asking themselves, "How long can we endure this?” They may well hunker down and live off of hard currency and commodity reserves in a hope that a Democratic administration follows that of President Trump, and rejoins the nuclear deal. This won’t be as easy as some will imagine, and Tehran will likely seek compensation for the losses incurred during the Trump years.
The Cipher Brief: How does the recent change in IRGC leadership play into this?
Roule: Iran’s supreme leader, Ayatollah Ali Khamenei, recently appointed General Hossein Salami as the new chief commander, replacing Mohammad Ali Jafari. Jafari was moved to a cultural organization, to make room for his hard line deputy, Salami to take the lead. Perhaps Khamenei wanted to send a message by promoting Salami, who has a long history of fiery comments against the West and Israel. It is also possible, that Khamenei views the role of the IRGC’s soft power as more important given domestic unrest and a need to consolidate Iran’s recent gains abroad.
The Cipher Brief: What will be the humanitarian impact of ending sanctions waivers? It is possible countries will seek work arounds?
Roule: I don’t see a significant change in the near-term as to Iran's ability to purchase food and other humanitarian aid products. The administration, supported by UN organizations, says that sanctions thus far have not impacted Iran's ability to acquire medicine and food. Obviously, the Iranians say the opposite. I would expect those competing narratives to continue. I think the recent Islamic Revolutionary Guard Corps (IRGC) designation as a foreign terrorist organization (FTO) will be more of a complicating factor as international firms seek to avoid entanglements with this organization.
The above said, I can’t help recalling the 1995 UN oil for food program aimed at Iraq. Is it possible that at some point we could be looking for repetition of this architecture? If so, I would anticipate that Russia, which has protected Iran at the UN Security Council for years, may introduce this idea at the UN Security Council.
Turkey, Russia and China may try to replicate the special purchasing mechanism that the EU attempted to put in place. My sense is this won’t be any more successful than the Brussel’s effort, but each of these countries may try to lever the prospect of this mechanism in their existing bilateral discussions with the administration on other issues.
The Cipher Brief: Are there indications that the sanctions are having the desired effect?
Roule: Some observers say that sanctions have been in place for a year, but Iran has yet to come to the table. In fairness to the administration, that's not how sanctions work, and this certainly isn’t how they worked in the Bush or Obama administrations. Sanctions act as an accelerant on existing social and economic pressures. They usually take years to play out and the extent to which those pressure points exist describes the impact of sanctions. But sanctions have cost the regime hard currency. Secretary Pompeo estimated this figure at around 10 billion dollars.
Norm Roule, Former National Mission Manager for Iran, ODNI
Just as it would be fair to say that at least a small portion of JCPOA financial relief went to hard liners, and Iran’s missile and terrorism programs, renewed sanctions impact these same targets. Indeed, we've seen Lebanese Hezbollah and other surrogates complain of money problems, which is an excellent indicator that sanctions are reducing the resources available to some very bad players.
I also think that these sanctions shouldn't be seen entirely alone. I would look at them in terms of other discussions taking place. You're now seeing Saudi Arabia and the Emirates play a larger role in Iraq and Syria. You've seen some engagement between Iraqi leaders and Abu Dhabi and Riyadh, and I think that's a good thing for the region. I think there's a good news story there that probably isn't public yet, that these two countries are doing their best to push back on, or at least compete with Iran, as a source of influence on these countries.
One final point: Some commentators claim that this decision makes war in the region more likely. I don't think this means war is inevitable. I don’t think it’s even likely, but the automaticity associated with confrontation is now becoming a more important factor in that this announcement follows in the wake of the foreign terrorist organization designation of the IRGC.
Read more from Norm Roule in The Cipher Brief
