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The Trump administration will sharply accelerate its goal of driving Iran's oil exports to zero, ending sanctions exemptions that it previously granted to some of the Islamic Republic's biggest customers.
President Donald Trump unilaterally withdrew from a 2015 nuclear accord with Iran last May and restored wide-ranging sanctions on the Iranian economy in November. At the time, his administration granted six-month waivers to eight countries that allowed them to continue importing limited quantities of crude oil from Iran.
The market widely expected Washington to extend the waivers for five of the countries. However, the administration says that any country still importing oil from Iran will be subject to U.S. sanctions beginning on May 2.
"President Donald J. Trump has decided not to reissue Significant Reduction Exceptions (SREs) when they expire in early May," the White House said in a statement. "This decision is intended to bring Iran's oil exports to zero, denying the regime its principal source of revenue."
The Trump administration is trying to force Iran to the negotiating table. Last year, it laid out 12 demands that Iran must meet before the U.S. lifts sanctions. The list asks Iran to accept new limits on its nuclear program, end ballistic missile tests, cut off support for U.S.-designated terror groups and free U.S. citizens held in detention.
"With the announcement today, we've made clear our seriousness of purpose," Secretary of State Mike Pompeo said during a press conference on Monday. "We are going to zero. How long we remain there, at zero, depends solely on the Islamic Republic of Iran's senior leaders. We've made our demands very clear to the ayatollah and his cronies."
The decision to stop issuing sanctions waivers threatens to wipe roughly 1 million barrels per day off the market at a time when analyst say oil supply is already tightening. Crude futures spiked to nearly six-month highs on news of the policy, which was first reported Sunday by The Washington Post.
The Saudis and Emiratis are currently partnering with their fellow OPEC members and several other oil producing nations, including Russia, to limit oil supplies. The so-called OPEC+ alliance has been trying to keep 1.2 million bpd off the market since January, following a collapse in oil prices in the final months of 2018.
The White House statement suggests the group will soon reverse course and hike output.
Saudi Arabia and UAE have assured the U.S. they will ensure the market has an "appropriate supply," Pompeo said. He said the suppliers have been working directly with Iran's customers to make the transition away from Iranian barrels less disruptive.
The Saudis stopped short of explicitly guaranteeing a change in policy but reiterated its commitment to balancing oil supply and demand.
The kingdom will "coordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance," Saudi Energy Minister Khalid al-Falih said on Monday.
"In the next few weeks, the Kingdom will be consulting closely with other producing countries and key oil consuming nations to ensure a well-balanced and stable oil market, for the benefits of producers and consumers as well as the stability of the world economy," Falih said in a statement.
Following Washington's official announcement, Trump tweeted that Saudi Arabia and other OPEC members will "more than make up" for any drop in Iranian supplies.
Three of the countries that received the exemptions — Greece, Italy and Taiwan — have already cut their imports from Iran to zero. However, analysts widely expected the Trump administration to extend the waivers to China, India, Japan, South Korea and Turkey, all of which took advantage of the waivers during the first six-month window that began in November.
Companies in those countries now face the threat of being locked out of the U.S. financial system if they continue to import crude from Iran. The question is whether some of those countries will seek to skirt the sanctions, including by facilitating or encouraging purchases of Iranian crude through companies not tied to the U.S. financial system.
China's Foreign Ministry on Monday denounced Washington's Iran policy.
"China opposes the unilateral sanctions and so-called 'long-arm jurisdictions' imposed by the US. Our cooperation with Iran is open, transparent, lawful and legitimate, thus it should be respected," Foreign Ministry spokesperson Geng Shuang told reporters.
"Our government is committed to upholding the legitimate rights and interests of Chinese companies and will play a positive and constructive role in upholding the stability of global energy market."
Turkish Minister of Foreign Affairs Mevlut Cavusoglu also rejected the sanctions, saying they "will not serve regional peace and stability" and would hurt the Iranian people.
Dialing up pressure on Iran threatens to spark maritime conflict in the Persian Gulf. Iran has long threatened to shut down the Strait of Hormuz, the world's busiest transit lane for seaborne oil shipments, if it is prevented from exporting oil.
On Monday, Iranian officials renewed those threats.
"According to international law, the Strait of Hormuz is a marine passageway and if we are barred from using it, we will shut it down. In case of any threat, we will have not even an iota of doubt to protect and defend the Iranian waters," Rear Admiral Alireza Tangsiri, commander of the Islamic Revolution Guards Corps' Navy, told the al-Alam news channel, according to Iran's semi-official Fars news agency.
Earlier this month, the Trump administration designated Iran's Islamic Revolutionary Guard Corps a terrorist organization, marking the first time the U.S. has applied the designation to a foreign country's military.