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U.S. Delays Petrochemical Sanctions on Iran

The Trump administration has delayed new, tougher sanctions on Iran’s petrochemical sector, said people familiar with the matter, as it seeks to dial back tensions that have threatened to spiral out of control.

The pivot came after heated rhetoric between Washington and Tehran over U.S. accusations that Iran was likely behind the sabotage of Saudi oil tankers, the people said, including a warning last week from President Trump that a war could see the “official end of Iran.”

The U.S. Treasury had planned to implement new sanctions in mid-May that for the first time detailed which Iranian petrochemical entities are off limits to foreign companies, the people familiar with the matter said, and could still move forward with them.

A spokesman for the U.S. Treasury Department said its longstanding policy isn’t to comment on prospective actions.

Further damage to the strategic sector could have thrown Iran into a deeper economic crisis. Petrochemical sales are Iran’s second biggest export after crude oil. The country hopes to generate an annual $36 billion in such sales by 2021, up from $19 billion in 2015, Iranian Oil Minister Bijan Zanganeh said at an oil and gas conference in Tehran this month.

Washington has raised pressure on Iran in recent weeks, saying it will step up its naval presence in the Persian Gulf, send 1,500 more troops and fast-track billions of dollars in arms sales to regional allies. That tougher posture came weeks after the U.S. tightened sanctions on the Islamic Republic’s oil sales with the intention of reducing its crude exports to zero.

That move, which included a ban on sales of mineral metal products, has deterred most Tehran’s customers from making official crude purchases.

Brian Hook, the State Department’s special representative on Iran, said in March that Iran has lost about $10 billion in revenue as a result of U.S. sanctions that went into effect in November, an amount that has surely risen since then. The U.S. withdrew from the Iran nuclear pact a year ago and then reimposed sanctions against Tehran.

Mr. Trump has said he doesn’t want war with Iran nor to overturn the government. The Trump administration is proceeding with caution on the sanctions because it is concerned that recent tensions could spiral out of control, said the people familiar with the matter.

The White House is “trying to be prudent and responsible,” John Bolton, President Trump’s national security adviser said on Wednesday. Mr. Bolton also accused Iran of directly carrying out attacks on four ships in the Persian Gulf.

In principle, sales of petrochemicals, including ammonia, methanol and urea, are already banned under existing U.S. sanctions but enforcement hasn’t been robust. Under the U.S. plan that was to be implemented this month, companies and individuals outside of Iran could be fined and lose access to the U.S. financial system if they were caught buying Iranian petrochemicals.

A full ban on Iranian petrochemical exports could cut deep. In addition to generating export revenue, petrochemical companies — most of them privatized — also yield profits for many small shareholders in Iran. Such companies are among the biggest on the Tehran Stock Exchange as they rely on cheap, locally produced hydrocarbons for their feedstock, said Hamid Moghadam, the director of the international department at the Tehran Stock Exchange.

Iranian traders who sell commodities say the sector has prepared itself for possible sanctions by alerting front companies in places like Hong Kong. Iran has managed to sell small amounts of oil by transferring cargoes to third parties but Iranian oil traders say petrochemicals would be harder to smuggle because each factory’s products have unique chemical properties.
Source: Dow Jones

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