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Takeaway: Requirement that revenue for 8 "temporary allotments" to go into escrow accounts for limited purchases of non-sanctioned goods.

US Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin on Monday morning announced that all nuclear-related sanctions on Iran are now fully in effect. A transcript of the press conference is available here.

Pompeo released the complete list of 8 countries that have received “temporary allotments” with extra time to get compliance to zero imports.  The countries are: China, India, Turkey, Japan, South Korea, Greece, Italy and Taiwan.

Unlike waivers, the “temporary allotments” will not be renewed, the State Department said today, and a condition of the extension is that the country must substantially reduce its exports now and be on a path to zero. 

As we said in our Friday note, we think that getting China, India and Turkey to reduce imports now in exchange for the deadline extension is significant and a clever move by the administration.  That’s because almost no one expected any of the three nations to comply with sanctions. 

As a result, the State Department now believes total Iran exports to be impacted by US oil sanctions is currently close to 1.4 to 1.5 million barrels per day (b/d), according to our sources. This estimate is based on a May baseline of 2.7 million b/d in Iran exports and includes reductions contributed by the 8 countries receiving deadline extensions.  Our friends at TankerTrackers.com has October exports at 1.6 million b/d so we believe Iran exports in November will fall to about 1.2 to 1.3 million b/d as a result of US sanctions.

 D-Day for Iran Oil Sanctions: State Dept expects Iran exports will be reduced by 1.5 million b/d - D Day for 1.5 mbd Iran

Details of the deals reached with the 8 countries have not been disclosed yet as we think there are ongoing negotiations on other matters and concessions not involving oil imports. But we feel very confident about the 1.4 to 1.5 total number of lost Iran exports.

If China, Turkey and India also agreed to eventually go to zero, it is a very big deal. We think China is a special situation and may be gaming the US to see what might happen with future negotiations with Iran but we ultimately don’t think they will comply with zero imports.  However, if Turkey and India eventually go to zero imports from Iran, the cumulative total will be in excess of than 1.5 million b/d.

Moreover, the US is also requiring a condition that oil sale proceeds during the extensions must go into an escrow account in the local currency of the importer. The escrow can only be tapped for non-sanctioned goods or services (ie medical supplies, food and other limited humanitarian purposes). We think the escrow condition raises questions about whether Iran will even make the sales.

The escrow releases will be watched very closely by the US government and violations would likely trigger an end to the deadline extension.  

Treasury Secretary Mnuchin in his remarks sent a warning to the world that the US will be “strictly enforcing our sanctions.” The Treasury Department released a press release with details of the full sanctions in effect today, and to show how tough sanctions are, the Treasury guidance even included a sanction on a tanker that sunk after a collision earlier this year. The Treasury press release is available here.