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Takeaway: Don’t call them waivers: US will provide temporary deadline extensions for 8 countries to get compliance to zero imports

US Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin on Friday morning held a background briefing for reporters on Iran sanctions to go into effect on Monday. Pompeo told reporters that US sanctions will reduce Iran oil exports by "more than 1 million barrels" per day (b/d) even with temporary deadline extensions for 8 countries to get compliance to zero imports. 

A condition of the extension is that the country must make "significant reductions" in its imports now and be on a path to zero. The extension is not a period to continue at previous full import levels. 

We believe some of the countries/jurisdictions receiving an extension include China, Turkey, India, Japan, South Korea and Taiwan. Press reports have also confirmed these countries. Secretary Pompeo said in the morning briefing that the EU will not receive an extension but added the US was still in negotiations with countries so the full list and other details will be released on Monday. A transcript of the State Department Iran Sanctions briefing is available here.

If China, India and Turkey are now importing “at greatly reduced levels” as Secretary Pompeo said today in exchange for the deadline extension, this is significant and a clever move by the administration. We had never included any of the three as complying with US sanctions for our own forecast of 1 million b/d of lost Iran oil exports. If they also agreed to eventually go to zero, it is a very big deal. China we think is a special situation but if Turkey and India eventually go to zero imports from Iran, the cumulative total will be in excess of than 1 million b/d.

Additionally, the US is negotiating a condition that sale proceeds must go into an escrow account in the local currency of the importer. The escrow can only be tapped for humanitarian purposes so the administration is making the case that any oil or condensate sale proceeds during the temporary period won't go to Iran except for very limited humanitarian aid or non-sanctioned goods or services. We think the escrow condition raises questions about whether Iran will even make the sales.

We wrote in our Wednesday note that the US *could* give some countries more time to comply with zero imports but we should not call them waivers.  This is only a grace period or extensions for some countries with special circumstances to get to zero. Secretary Pompeo described the extension as “a few months to get to zero.” He later said the purpose of the extensions were “to give them a little bit longer to wind down. Weeks.”