Moderator: Good morning everyone from the United States Department of State’s Asia Pacific Media Hub in Manila. I’m Zia Syed, the Asia Pacific Media Hub Director and I would like to welcome our participants dialing in from across the continent and the United States.
Today, we are pleased to be joined from Washington DC by Brian Hook, the Special Representative for Iran and Senior Policy Advisor to the Secretary of State, and Frank Fannon, the Assistant Secretary for the Bureau of Energy Resources. Mr. Hook and Assistant Secretary Fannon will be speaking today on the April 22 announcement by Secretary Pompeo that the United States will not issue any additional Significant Reduction Exceptions to existing importers of Iranian oil.
We’ll begin today’s call with some brief opening remarks from Mr. Hook and Assistant Secretary Fannon, then we will turn to your questions. We’ll try to get to as many questions as we can during the time that we have, which is approximately 30 minutes. As a reminder, today’s call is on the record.
With that, I’ll turn it over to our speakers. Please go ahead.
S/R Hook: Hi, it’s Brian Hook. Thanks for joining the call.
Our goal for the better part of the year has been to get countries importing oil from Iran to zero as quickly as possible. Secretary Pompeo just two days ago announced that the United States will not issue any additional Significant Reduction Exceptions when the current set of SREs expire on May 2nd. This was a historic decision toward fulfilling a promise.
We have said all along, the Secretary has, Assistant Secretary Fannon and I, have all said that we want to get to zero as quickly as market conditions will permit. And we believe that all things considered, balancing our national security and economic interests, that those conditions have been met which put us in the position to not issue any new exceptions, to [further] our campaign of maximum economic pressure on the Iranian regime.
We will continue to apply this pressure on the regime until its leaders decide to change their destructive behavior, to respect the rights of their own people, and return to the negotiating table.
It’s important for us to focus on the oil because it is historically the chief source of revenue. Up to 40 percent of the regime’s revenue comes from oil sales. It is the regime’s number one source of cash.
So before our sanctions went into effect, Iran would generate as much as $50 billion annually in oil revenue. We estimate that our sanctions have already denied the regime more than $10 billion since May. The regime would have used that money to support terrorist groups like Hamas and Hezbollah, to fund its ballistic missile development, which is inconsistent with UN Security Council Resolution 2231. They would use the money to continue to support the Houthis and perpetuate the humanitarian crisis in Yemen.
As we look ahead at the impact in the oil and energy markets, as I said a little bit ago, we’ve been very careful and deliberate about how we go about this to ensure market stability. And over the last couple of days, I think we’ve seen that borne out, that energy markets will remain stable. The global oil market is well supplied. And we are working with our allies and partners to ease the transition away from Iranian crude to other alternatives.
You saw a statement by Saudi Arabia on Monday that was issued concurrently with the Secretary of State making his announcement, and Saudi Arabia and the United Arab Emirates have made commitments to increase oil production to offset reductions in Iranian oil exports and to ensure that the market, the global oil markets, have sufficient volumes to facilitate this transition with minimal impact.
The United States is doing its part. Last year, American oil [production] increased by 1.6 million barrels per day, and we see our federal government is projecting an increase of an additional 1.5 million barrels in 2019. Secretary Fannon can speak to that in more detail for those of you who would like more detail.
The last thing I would say before opening up to questions — we are seeing an impact. We’ve been out of the deal for about 11 months. The sanctions that were suspended under the Iran Nuclear Deal have been back in place for about five and a half months and we’re already seeing a very positive impact.
As I said, we’ve denied the regime direct access to more than $10 billion in revenue since May. That’s a loss of at least $30 million per day and that is only related to the oil. That doesn’t include many other sources of revenue we’ve denied. Over 100 corporations have withdrawn from the Iranian market. We have sanctioned somewhere near 70 Iranian banks. The SWIFT Financial System has largely matched our designations and disconnected the majority of Iranian banks from the international financial system.
There are reports that some Hezbollah fighters are receiving half of their pay. The leader of Hezbollah in March made a public appeal for donations for the first time ever. And we’re seeing Hezbollah forced to undertake austerity measures because the money from Iran is not flowing like it used to — and this is a very good thing when Hezbollah has to make appeals for money.
We are committed to starving the regime of the revenue that it needs to fund its proxy wars and to export revolution around the Middle East. That includes Hamas, Palestinian Islamic Jihad, Hezbollah, Shia fighters in Iraq, its IRGC soldiers in Syria, the Houthis in Yemen, and the Shia militias that it supports in Bahrain. We think that it is very hard to imagine a more peaceful Middle East without a more peaceful Iran.
As you go around the Middle East — where there is conflict, Iran’s fingerprints are usually found right there time and again. So we think this is the best thing that we can do to promote a more peaceful and secure Middle East.
The decision not to renew the sanctions is not meant to punish any country. It is designed to advance our national security objectives which we believe will promote a more peaceful and stable Middle East.
I’ll conclude there and Assistant Secretary Fannon and I are happy to take questions.
Moderator: Our first question comes from Florence Tan from Thomson Reuters. Please go ahead.
Question: My questions are what does the May 1 deadline mean? Will all payments have to be stopped before then or do all shipments have to arrive before the deadline?
And the second question is how much more crude oil will Saudi Arabia and the UAE be able to supply, and from when?
A/S Fannon: Frank Fannon here.
The Secretary [inaudible] said that zero means zero. [Inaudible] when the current SREs expire. The mechanics of the way in which various sanctions would be imposed, that would all be worked out in due course as we approach May. But the point was that it’s been very, very clear about zero meaning zero, and that’s the direction we’re following.
I’d just go back to as Brian outlined the history of this. We’ve been making a consistent message for a year. So we very much see the year-long transition towards finding alternate sources. We’ve been at this for a while. We’ve engaged with our partners and allies in the region. The importers, of course, as Brian described, the target is the Iranian regime. The target will not be the importers. So we’ve been working in partnership with them to identify other sources.
You mentioned Saudi Arabia and what they’re going to do. They are identified, they’re aligned with our geopolitical interests, identifying Iran as a destabilizing force of the Middle East as well as funding terrorism around the world.
So there’s clear alignment there, and they’ve made public statements on what they’re committing to do.
I think I would also state more broadly in terms of the markets, you should see IEA, if you haven’t done already, the International Energy Association [inaudible]’s comments when he stated that, quote, markets are adequately supplied, global spare production capacity are at comfortable levels, and also identified that global spare production capacity has reached 3.3 million barrels. So we feel that given the market, now is the right time to go to zero. And the market is well supplied and we have sufficient buffers for any unforeseen instances.
We are doing this in partnership with [inaudible] producers, and working with partners and allies constructively to find those alternative sources, to transition them away. Thank you.
Moderator: Our next question will go to Seema Sirohi from the Economic Times.
Question: Hello, I am Seema from the Economic Times in India.
The question is: would you be willing to make any difference in how you implement the sanctions schedule [with] friendly countries, such as India, and an economic rival or an enemy like China? Supposing India continues to import a minimum amount of oil from Iran because there’s international interest to keep a bridge open to Iran.
S/R Hook: I can take the first part of that. I think sometimes these decisions get mischaracterized. What we are saying to countries is that they have a choice. They can either do business with the United States and with the global financial system, or they can import Iranian crude oil — but they can’t do both. To date, there are now well over 20 countries that prior to the reimposition of our sanctions, were importing Iranian crude oil. None of them have made any hint that they’re interested in choosing Iranian imports over the United States market. And we have every reason to believe that that will continue in the case of the handful of remaining importers of Iranian crude oil. It just isn’t in anyone’s economic self-interest to lose access to the global financial system or to the American financial system.
I know you posed a hypothetical, but I don’t think we have to entertain those kinds of hypotheticals because, as Frank said, we’ve been working very closely with countries like India, to ensure that there is no interruption in their supply, to ensure that we maintain a very stable oil market and keep prices at a manageable level, and we have a lot of confidence that that’s going to continue.
So the only reason we granted oil waivers back in November is because we faced a different oil market then. It was a tight and fragile oil market, and if we had not granted those waivers, we then would have seen, I think, possibly a very significant spike. We are now in a position where we can end these waivers.
We are motivated by a desire to seek a more stable and peaceful Middle East. It’s not meant to punish or to disrupt anybody’s energy needs. We think that we can maintain a very strong supply of oil to those importers, while we’re also denying Iran the revenue it needs to fund proxy wars throughout the Middle East.
Moderator: Our next question will come from Qingting Zheng from 21st Century Business Herald in China.
Question: Hello. My question is: China’s Foreign Ministry has said that it was resolutely opposed to the move. So are your concerned that this move could hurt the China-U.S. relationship and will the U.S. link Iran oil imports to the trade talks with China? Thank you.
S/R Hook: I think I’d give the same answer I gave earlier. We don’t believe that it’s in anyone’s economic self-interest to lose access to the global financial system, and Iranian crude is not an exotic oil. It’s not an exotic grade. There’s plenty of supply on the market with very compatible grades that can be swapped out.
China reduced its imports in order to be eligible for a Significant Reduction Exception back in November, and they were able to find alternative suppliers. We anticipate, and are very confident, that they will be able to make a very smooth and easy transition to meet their energy needs and maintain access to the global financial system and to the American financial system.
A/S Fannon: One more point to underscore is, Brian laid out how maximum pressure is having a meaningful impact on the Iranian regime in a variety of ways.
Another symptom of that affecting this is that the regime is in desperation. And the total [inaudible] is that they are giving severe discounts for their sales and perhaps other sweeteners, and who doesn’t like a deal? We understand that. But the work that we’ve been doing, and I think you’ve had [inaudible] from the other producers, demonstrate that the needs will be met, and that they will be addressed.
I think the price situation is well in hand. In fact, we’ve looked at what the price of oil was. The oil price prior to our cessation of participation in the JCPOA. On April 24, 2018, Brent was at just under $74. On April 23, 2019, it closed at $74.51. We are in a very strong price environment, so given the action of the other aligned producing countries as well as the considerable production from the United States, we are very, very confident that we are in a very well supplied situation.
S/R Hook: I think Frank makes a really good point. We have taken off 1.5 million barrels of Iranian crude and have done it very responsibly. And I think Frank’s statistics bear this out. There is roughly about a million barrels of Iranian crude that are still left. There’s plenty of supply on the market to ease that transition, maintain stable prices and a very strong supply for any country that needs this kind of grade of oil.
Moderator: Our next question will come from Sharon Cho from Bloomberg based in Singapore.
Question: Hi. I heard that there might be some kind of a brief grace period, so I wanted to ask you if this will be the case. And if the grace periods are given, how long will that be and will all countries with waivers be able to get them? Thank you.
S/R Hook: Secretary Pompeo, I would refer you to one of the questions he received on Monday. It was along the lines of this. He didn’t want to close the door to incidental transactions. And we don’t have anything to add beyond that, other than the Secretary saying we would not close the door to considering incidental transactions. That’s as much as we can say.
Moderator: Our next question will come from Jeongeun Lee from MBC.
Question: Hi. Thank you for offering me the opportunity to ask a question.
As you know, Korean oil companies are importing condensate from Iran and it takes several years to get a substitute, so is there any chance for Korea to get an exception from sanctions for now?
A/S Fannon: The idea of extending exceptions, in the context of the SRE as described, that door is closed. The Secretary is extremely clear on that. There shall be no more SREs issued.
The issue of condensates, we’ve been working very collaboratively with Korea both in terms of diplomatic channels as well as in technical capacities to better understand the petrochemical facilities’ needs as well as [inaudible] other sources around the world. These conversations are ongoing. They’ve raised some issues with respect to quality control in the context of U.S. production and the way in which U.S. condensate is marketed. We really encourage the respective companies at issue, and the potential U.S. or other exporters as well as potential buyers in the private sector in Korea, to engage one another. And I’m very confident that any of the technical considerations, issues of quality, integrity of the product, that those can be really worked out.
Korea has some of the most sophisticated petrochemical industry players in the world, and I’m very confident that they can work through some of these more technical challenges to ensure that they get the right product that they need for their facilities. Thanks.
Moderator: Our next question will come from Mohammed Tawfeeq. Please go ahead.
Question: My name is Mohammed Tawfeeq and I work for CNN. Thanks for your time, and I appreciate it.
I have a quick question, seeking a reaction from your side — it seems that the Supreme Leader of Iran Khomeini, it came up today in his speech, and he said U.S. efforts to [stop imports] of Iran’s oil will not get them anywhere. And he added, we will export oil as much as we can, anytime, anywhere.
The question is, what’s your reaction to that? And do you think that Iran is still capable to export their oil in different means and ways?
S/R Hook: Well, we know for a fact, we’ve already denied the regime over $10 billion in revenue. That number is going to continue to go up. This is the kind of bluster and falsehoods that we expect from the Supreme Leader. I would also point you to something which President Rouhani said, he said they were suffering I think their worst economic crisis in 40 years. Foreign Minister Zarif in November said that Iran would thrive under U.S. sanctions, and then only a couple of months later the president says they’re facing one of the worst economic crises in history, and then you have the Supreme Leader saying that it doesn’t make any difference. So I’ll leave it to you to try to reconcile those three statements.
We know that our sanctions are denying them billions and billions of dollars in revenue. We know, referring to a front page article in the New York Times just a few weeks ago, documenting how Iran’s proxies are experiencing funding shortfalls because Iran does not have as much money to spend on its proxies as it used to.
Part of that is because Iran mismanages their economy, and they’ve been doing that successfully for 40 years. It is a religious mafia. It is a kleptocratic regime that robs its own people blind to fund an expansionist foreign policy that the Iranian people are tired of. So we are going to continue to deny the regime the revenues it needs and the Supreme Leader can say all he wants, but facts are stubborn things.
Moderator: Thank you very much. Next we will go to Ms. Florence Tan from Thomson Reuters.
Question: Thank you very much. My question is: how about Chinese equity production in Iranian oilfields? Chinese companies have expended over the years, billions of dollars in several fields to Iran. Will that equity production in Iran also be subject to sanctions?
S/R Hook: I don’t think we have, Frank, unless you want to correct me, I don’t think we have an announcement on that.
A/S Fannon: That’s right. We have nothing to announce on that.
Moderator: If we could next go to Lingke Aubrey Zeng from Caixin Media in China.
Question: My question is what penalty or punishment is being imposed on China if China continues to import Iranian oil? What will be the punishment?
S/R Hook: It’s a hypothetical question. I tend to avoid hypothetical questions. I try to deal with facts on the ground and not hypothetical fact patterns. We will sanction any sanctionable activity. We have already done that since the reimposition of our sanctions. There was an effort to try to evade our sanctions by smuggling oil into Syria and we have sanctioned one Russian organization and one Syrian individual for their efforts to try to skirt our sanctions.
This administration is taking an approach to the enforcement of sanctions against Iran that does not have historical parallel. We have dedicated new resources to monitoring sanctions evasion and enforcing our sanctions. As a consequence, nations around the world know that it’s a different approach — certainly [different] than the prior administration. The prior administration gave 20 oil waivers over three years. We did it for six months. And nations know that the cost/benefit, the risk/reward of trying to evade our sanctions or violate our sanctions simply don’t exist.
So far to date we’ve been very pleased with our ability to enforce our sanctions. Trying to create a non-permissive environment has ripple effects and it deters nations from even considering going down that road. It’s just simply not worth it. Iran is not worth the risk.
Moderator: Thank you. One question we received in advance from a couple of different people, including from Kevin Princic from the Yomiuri Shimbun: It seems that Iranian crude still accounts for three percent of Japan’s purchases. Will the U.S. really sanction Japan if it cannot reach zero by May 2nd? Are grace periods being considered for those still reducing?
S/R Hook: I think we’ve answered that one a few different ways in terms of the May 2nd deadline is what it is. Japan is a sophisticated economy and has demonstrated a remarkable resilience in being able to integrate and retool as appropriate, and be able to integrate other crude sites. These crude sites are being made available as we discussed, so we’re confident that they will maintain and continue with the cooperative dialogue we’ve been having and that they will make the necessary adjustments, as they have been doing, over the last year of our engagement on this issue.
Moderator: Thank you. We’re just about out of time. We’ll take one last question from Qingting Zheng from 21st Century Business Herald.
Question: Thank you very much. The Saudi Arabian Energy Minister said on Wednesday it is not in a hurry to increase its oil production. So do you have any comment on that? And it was reported that the Saudis are aiming for at least 70 U.S. dollars [per barrel] oil prices because the Kingdom’s budget needs these higher prices. Can you comment on that? Thank you.
A/S Fannon: I think we have, as Secretary Pompeo announced, the White House issued a statement as well, a clear commitment from the Kingdom of Saudi Arabia. They identify Iran as the biggest threat facing the region and we have alignment of purpose on our policies. They’ve made very strong statements, they’re pleased with the partnership and the alignment. Also the [Saudi] Foreign Minister Ibrahim al-Assaf has made some very strong statements. I’d also encourage you to check those out. In addition he’s very much in support of the effort and ensuring that consumers have sufficient [inaudible] oil to meet their needs.
Moderator: Thank you very much, and that concludes today’s call. I want to thank Special Representative Brian Hook and Assistant Secretary Frank Fannon, and I also want to thank all of our callers for participating.