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The Trump administration must decide by May 2 whether to allow Iran to continue exporting crude oil — a decision with huge implications for Washington’s Iran strategy and the oil market.

The big picture: Since withdrawing from the nuclear deal last May, the U.S. has steadily ratcheted up economic and political pressure on Iran. The core component of the Trump administration’s “maximum pressure” strategy is reducing the Islamic Republic's oil exports, which provide provide a third of government revenues.

Background: U.S. sanctions require all purchasers of Iranian oil to “significantly reduce” their oil purchases every six months, with a stated goal of driving Iranian exports to zero. But in November the administration granted waivers that allow eight countries to continue importing Iranian crude: China, India, Turkey, South Korea, Japan, Taiwan, Greece and Italy.

Where it stands: Before the U.S. withdrew from the nuclear deal, Iran exported about 2.3 million barrels per day (bpd) of crude oil. In 2019, its exports have fallen to about 1.3 million bpd.

Yes, but: The Trump administration will not manage to bring Iran's exports to zero by May.

The U.S. will not be able to convince all oil importers to give up on Iran. China and India, by far its biggest oil buyers, have strategic relationships with Iran and depend on its energy resources. The U.S. is unlikely to threaten sanctions against Chinese or Indian oil refiners or banks.

The loss of Iranian barrels would lead to a significant spike in oil prices, which have already risen due to U.S. sanctions on Venezuela, concerns about oil output in Libya and Algeria, and Saudi Arabia’s decision to cut production. Moreover, since Trump is sensitive to the political consequences of high oil prices (as his tweets make clear), the start of summer driving season would make for especially difficult timing.

The bottom line: There's more slack in the “maximum pressure” campaign than the administration wants to let on. Trump's team still has higher priorities, like reaching a trade deal with China, strengthening ties with India and managing domestic gasoline prices.

Robert Johnston is managing director for global energy and natural resources at Eurasia Group and a senior fellow at the Atlantic Council Global Energy Center. Henry Rome is an Iran analyst at Eurasia Group.

Trump’s Iran strategy collides with oil market realities

"Maximum pressure" won't drive Iran's oil exports to zero.

Ships at Iran's Port of Kharg Island Oil Terminal. Photo: Fatemeh Bahrami/Anadolu Agency/Getty Images

Energy

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Oil companies

The Trump administration must decide by May 2 whether to allow Iran to continue exporting crude oil — a decision with huge implications for Washington’s Iran strategy and the oil market.The big picture: Since <a class="gtmContentClick" data-vars-link-text="withdrawing from the nuclear deal" data-vars-click-url="https://www.nytimes.com/2018/05/08/world/middleeast/trump-iran-nuclear-deal.html" data-vars-content-id="1308fab0-ecfd-473c-a056-762112206ae1" data-vars-headline="Trump’s Iran strategy collides with oil market realities" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.nytimes.com/2018/05/08/world/middleeast/trump-iran-nuclear-deal.html" target="_blank">withdrawing from the nuclear deal</a> last May, the U.S. has steadily ratcheted up economic and political pressure on Iran. The core component of the Trump administration’s “maximum pressure” strategy is reducing the Islamic Republic&#x27;s oil exports, which provide <a class="gtmContentClick" data-vars-link-text="provide a third" data-vars-click-url="https://www.bourseandbazaar.com/articles/2018/12/19/iran-budget-under-scrutiny-as-oil-revenues-fall" data-vars-content-id="1308fab0-ecfd-473c-a056-762112206ae1" data-vars-headline="Trump’s Iran strategy collides with oil market realities" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.bourseandbazaar.com/articles/2018/12/19/iran-budget-under-scrutiny-as-oil-revenues-fall" target="_blank">provide a third</a> of government revenues.

Ominous forecasts about the impact of climate change serve as the backdrop for the world — led by U.S. lawmakers and companies — to debate big action on the problem, which could upend energy systems and our way of life.

Energy & Environment

Amid the announcement of the Green New Deal (GND) resolution on Thursday, critics have been quick to characterize the policy as quixotic and extreme. But GND supporters are far from alone in advocating for a radical transformation of the global energy system, nor are such efforts confined to the left wing of the Democrat congressional caucus. 

The big picture: In comparison to the rest of the world, Washington has been uniquely slow to recognize and address the threat of climate change. The GND, regardless of whether it comes to fruition, seems poised to force a conversation in the Capitol that other governments and the private sector have been holding for a long time.

Between the lines: Corporations from Walmart to Toyota are already investing in restructuring their businesses toward greenhouse gas reductions and a longer-term sustainable energy model. 

Their efforts are partly about meeting changing customer and shareholder expectations and reducing costs, and partly about anticipating the kind of “massive government intervention” the GND calls for. 

If GND-style proposals become a reality, such “future-proofing” efforts by greenhouse gas–intensive corporations will come to be regarded as a prudent form of risk management.

Similarly, major energy-consuming and -producing governments such as Germany, China, and even Saudi Arabia are pursuing their own versions of risk management and economic transformation in anticipation of rapid decarbonization. 

None of these government or corporate efforts are as aggressive as the GND, but as a result are unlikely to deliver greenhouse gas reductions at a level consistent with the Paris Agreement or similar targets.

What’s new: While many clean energy advocates have unrealistically suggested that decarbonization can happen without economic or political pain, the GND acknowledges the necessity of massive government intervention, the insufficiency of existing carbon taxes and regulatory tools, and the possibility of economic disruption and opportunity. 

The bottom line: As the 2020 elections approach, the GND will likely spark public interest in a real debate about the difficult choices around decarbonization. U.S. voters show overwhelming support for the idea of a GND, though it remains to be seen whether Congress will be as receptive.

Robert Johnston is managing director for global energy and natural resources at Eurasia Group and a senior fellow at the Atlantic Council Global Energy Center.

The Green New Deal may finally bring climate change to center stage

Washington has been uniquely slow to recognize and address climate change.

U.S. Rep. Alexandria Ocasio-Cortez (D-NY) speaks as Sen. Ed Markey (D-MA) (R) listens during a news conference 

U.S. Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Ed Markey (D-Mass.) unveiling their Green New Deal resolution in front of the U.S. Capitol, on Feb. 7, 2019. Photo: Alex Wong via Getty Images

Politics

Green New Deal

Amid the announcement of <a class="gtmContentClick" data-vars-link-text="the Green New Deal (GND) resolution" data-vars-click-url="https://www.axios.com/green-new-deal-resolution-alexandria-ocasio-cortez-20e34edd-b868-4a61-8124-ad768ca35fae.html" data-vars-content-id="1acffd97-16d8-422d-8934-c83fac2416e9" data-vars-headline="The Green New Deal may finally bring climate change to center stage" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/green-new-deal-resolution-alexandria-ocasio-cortez-20e34edd-b868-4a61-8124-ad768ca35fae.html" target="_self">the Green New Deal (GND) resolution</a> on Thursday, critics have been quick <a class="gtmContentClick" data-vars-link-text="to characterize the policy as quixotic and extreme" data-vars-click-url="https://www.nbcnews.com/politics/2020-election/bloomberg-blasts-pie-sky-green-new-deal-rips-warren-wealth-n964056" data-vars-content-id="1acffd97-16d8-422d-8934-c83fac2416e9" data-vars-headline="The Green New Deal may finally bring climate change to center stage" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.nbcnews.com/politics/2020-election/bloomberg-blasts-pie-sky-green-new-deal-rips-warren-wealth-n964056" target="_blank">to characterize the policy as quixotic and extreme</a>. But GND supporters are far from alone in advocating for a radical transformation of the global energy system, nor are such efforts confined to the left wing of the Democrat congressional caucus. The big picture: In comparison to the rest of the world, Washington has been uniquely slow to recognize and address the threat of climate change. The GND, regardless of whether it comes to fruition, seems poised to force a conversation in the Capitol that other governments and the private sector have been holding for a long time.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Global oil prices plunged on Friday, erasing a week of gains after the U.S. said on Monday it would no longer issue waivers for Iranian oil imports. The administration's decision is likely to keep jostling oil markets as the waiver deadline approaches.

The big picture: The U.S. allowed 8 countries to buy Iranian crude and condensate over the past 6 months. The State Department has declined to address whether it will allow a “wind down” period for purchases beyond the May 2 deadline, after which importers would be immediately exposed to sanctions.

What to watch: South Korea and Japan will likely end imports, while China and India will buy only low volumes of Iranian crude. Iranian exports may dip to around 500,000 barrels per day, a staggering collapse from the 2.3 million barrels per day it exported one year ago.

But, but, but: While Trump’s plan may look good on paper, it leaves little margin for error in the case of additional oil supply disruptions, especially considering deteriorating conditions in Venezuela and the potential for disruptions in Libya. That’s a recipe for further upward price pressure.

Between the lines: Iran also gets a say in all this, and the market may not have “priced in” the country's response.

The lower its exports fall, the greater incentive it has to lash out — not just to drive oil prices higher, but to deter Washington from taking even more aggressive moves.

Iran is unlikely to close the Strait of Hormuz, but it could cause a lot of damage with cyber operations, perhaps against Saudi Arabia.

U.S. sanctions on Iranian oil leave slim margin for future shocks

And the market may not have priced in potential responses by Iran.

Secretary Mike Pompeo at a State Department press conference about the sanctions waivers on April 22. Photo: Andrew Caballero-Reynolds/AFP/Getty Images

Price of oil

Global oil prices <a class="gtmContentClick" data-vars-link-text="plunged" data-vars-click-url="https://www.cnbc.com/2019/04/26/oil-market-opec-output-rises-us-sanctions-on-iranian-oil-in-focus.html" data-vars-content-id="643ef8df-14f9-4265-b88e-c9c9739a67bc" data-vars-headline="U.S. sanctions on Iranian oil leave slim margin for future shocks" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.cnbc.com/2019/04/26/oil-market-opec-output-rises-us-sanctions-on-iranian-oil-in-focus.html" target="_blank">plunged</a> on Friday, erasing a week of gains after the U.S. said on Monday it <a class="gtmContentClick" data-vars-link-text="would no longer issue waivers" data-vars-click-url="https://www.axios.com/iran-oil-sanctions-waivers-price-mike-pompeo-db296725-8f92-4d3a-9bfc-3b708d636a81.html" data-vars-content-id="643ef8df-14f9-4265-b88e-c9c9739a67bc" data-vars-headline="U.S. sanctions on Iranian oil leave slim margin for future shocks" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/iran-oil-sanctions-waivers-price-mike-pompeo-db296725-8f92-4d3a-9bfc-3b708d636a81.html" target="_self">would no longer issue waivers</a> for Iranian oil imports. The administration&#x27;s decision is likely to keep jostling oil markets as the waiver deadline approaches.The big picture: The U.S. allowed 8 countries to buy Iranian crude and condensate over the past 6 months. The State Department has declined to address whether it will allow a “wind down” period for purchases beyond the May 2 deadline, after which importers would be immediately exposed to sanctions.

Iran’s alleged attack on Saudi oil facilities was a dramatic escalation in its shadow war with the U.S. and a clear sign that Tehran’s previous strategy was not working.

The big picture: Since May, Iran has tried to counter U.S. sanctions by tormenting the oil market with small-scale attacks, such as placing mines on ships in the Persian Gulf. Its goal has been to drive oil prices higher and thus raise the costs of the U.S. “maximum pressure” strategy.

Where it stands: Iran's tactics left the oil market largely unfazed, for 2 main reasons:

Oil supply is abundant, thanks especially to the rise of U.S. shale production. Saudi Arabia and Russia, two of the world’s largest oil producers, have curtailed their output precisely because there is too much oil on the market.

Oil demand growth is slowing, with crude demand weighed down by fears of a global economic slowdown — driven in part by the U.S.–China trade war.

Between the lines: To get the world’s attention, Iran needed to make a bigger splash. That’s where the Saudi attacks came in: With a handful of drones and cruise missiles, Iran knocked more than 5% of global crude production offline in a matter of minutes.

What’s next: Iran will be closely watching next week’s meetings at the United Nations to see if its message has gotten through — specifically, whether any sanctions relief is in the cards.

Iran does not want to go to war, but it may need to continue demonstrating its ability to disrupt oil supply — a recipe for more instability in the months to come.

Henry Rome is an Iran analyst at Eurasia Group. Robert Johnston is managing director for global energy and natural resources at Eurasia Group and a senior fellow at the Atlantic Council Global Energy Center. 

Go deeper: Read more at the Atlantic Council’s New Atlanticist blog.

As oil market recovers, Iran’s disruptions could continue

Its attack on Saudi oil facilities marked a major escalation.

three oil barrels against a red background

Iran

Iran’s alleged <a class="gtmContentClick" data-vars-link-text="attack on Saudi oil facilities" data-vars-click-url="https://www.axios.com/iran-militarized-oil-blackmail-exposes-failure-of-deterrence-b553d09b-373d-4de8-b8a3-54d9cd15bdd2.html" data-vars-content-id="7151e31a-4b4c-40fa-a3a3-0867838f9224" data-vars-headline="As oil market recovers, Iran’s disruptions could continue" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/iran-militarized-oil-blackmail-exposes-failure-of-deterrence-b553d09b-373d-4de8-b8a3-54d9cd15bdd2.html" target="_self">attack on Saudi oil facilities</a> was a dramatic escalation in its shadow war with the U.S. and a clear sign that Tehran’s previous strategy was not working.The big picture: Since May, Iran has <a class="gtmContentClick" data-vars-link-text="tried to counter U.S. sanctions" data-vars-click-url="https://www.axios.com/as-iran-seeks-negotiating-leverage-risks-of-miscalculation-multiply-db994f48-d5bf-421e-b046-0b0d5ff86b92.html" data-vars-content-id="7151e31a-4b4c-40fa-a3a3-0867838f9224" data-vars-headline="As oil market recovers, Iran’s disruptions could continue" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/as-iran-seeks-negotiating-leverage-risks-of-miscalculation-multiply-db994f48-d5bf-421e-b046-0b0d5ff86b92.html" target="_self">tried to counter U.S. sanctions</a> by tormenting the oil market with small-scale attacks, such as placing mines on ships in the Persian Gulf. Its goal has been to drive oil prices higher and thus raise the costs of the U.S. “maximum pressure” strategy.

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

At Wednesday night's climate change town hall, top Democratic presidential candidates will be challenged to lay out a climate strategy that is both effective and politically viable.

The big picture: Despite efforts by state governments and the private sector, the U.S. has a long way to go to formulate a coherent and globally credible climate strategy. A dedicated town hall offers Democratic primary voters a chance to scrutinize proposals like the sweeping Green New Deal and it reflects their growing sense of urgency around climate change.

What to watch: In the world of climate policy, there are technically credible plans that lack meaningful political support and bold political calls to action that neglect business, market and technical concerns. Candidates hoping to bridge that divide must attend to several overarching issues:

Reconciling climate action with populism and nationalism. Australia, Brazil and Canada have seen voters repudiate climate-centric strategies, and the question of “who pays” for climate action has sparked protests like France's “gilets jaunes” movement. Even in “deep blue” Washington state, a carbon tax ballot initiative was defeated in 2016 and again in 2018.

Wrestling with the future of oil and gas. Substitutes for petroleum fuel are still not at scale, particularly for trucking, shipping, rail and aviation. Two key questions, especially for voters in battleground states like Colorado and Pennsylvania, will be the speed of the transition candidates envision and how they see U.S. oil and gas exports fitting into it, if at all.

Weighing the role of carbon taxes. Debate has swirled around the right tax rates to decrease demand and whether to offset such taxes with consumer rebates or reductions in other types of taxes.

The bottom line: The town hall provides an initial opportunity for Democrats to convince voters that climate deserves to be more than what Trump calls a “niche” issue,  but there is a long campaign ahead and no shortage of competing issues.

Town hall could test traction of climate policy in Democratic primary

Climate change is a priority issue, but the viability of some proposals has sparked debate.

stack of file folders on a lectern with a microphone

Climate change policy

Climate change

At Wednesday night&#x27;s climate change town hall, top Democratic presidential candidates will be challenged to lay out a climate strategy that is both effective and politically viable.The big picture: Despite efforts by state governments and the private sector, the U.S. has a long way to go to formulate a coherent and globally credible climate strategy. A dedicated town hall offers Democratic primary voters a chance to scrutinize proposals like the sweeping <a class="gtmContentClick" data-vars-link-text="Green New Deal" data-vars-click-url="https://www.nytimes.com/2019/02/21/climate/green-new-deal-questions-answers.html" data-vars-content-id="bdb58001-88ea-4db3-ace5-051df9e401eb" data-vars-headline="Town hall could test traction of climate policy in Democratic primary" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.nytimes.com/2019/02/21/climate/green-new-deal-questions-answers.html" target="_blank">Green New Deal</a> and it reflects their growing sense of urgency around climate change.

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Robert Johnston

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As oil market recovers, Iran’s disruptions could continue

Town hall could test traction of climate policy in Democratic primary

U.S. sanctions on Iranian oil leave slim margin for future shocks

Trump’s Iran strategy collides with oil market realities

The Green New Deal may finally bring climate change to center stage