On April 22, 2019, the Trump Administration announced that the US government will not reissue the significant reduction exceptions (“SREs”) that have allowed energy companies in China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey to purchase Iranian oil without being subject to relevant US sanctions. The current waivers will expire on May 2, 2019.
The Trump Administration issued SREs on November 5, 2018, in tandem with the reimposition of sanctions targeting Iran, as discussed in our previous blog post here. The SREs are waivers of sanctions that would otherwise be imposed on non-US financial institutions that conduct or facilitate significant transactions with the Central Bank of Iran related to purchases of Iranian petroleum or petroleum products, under Section 1245(d) of the National Defense Authorization Act of FY 12 (NDAA 2012). Section 1245(d) of NDAA 2012 provides for an exception to these sanctions if the President determines that the country with primary jurisdiction over the financial institution has “significantly reduced” its crude oil purchases from Iran. Funds from SRE-exempt transactions must be held in an account in the SRE country and may only be used for bilateral trade between Iran and the SRE country or the purchase of humanitarian goods.
Under Executive Order 13846 of August 6, 2018, sanctions on non-US persons who engage in any significant transaction for the purchase, acquisition, sale, transport, or marketing of petroleum or petroleum products from Iran would not apply to non-US persons in an SRE country. The Trump Administration issued the current SREs to countries deemed to have demonstrated significant reductions in the purchase of Iranian crude oil during the six months preceding November 2018.
In its fact sheet about the SRE discontinuation, the Trump Administration stated that oil revenues have helped to finance Iran’s nuclear weapons and ballistic missile programs. Currently, India, China, South Korea, Japan and Turkey continue to import large amounts of Iranian oil. The decision not to reissue the SREs is part of a recent ramp-up of economic pressure on Iran by the Trump Administration, following designation of the Islamic Revolutionary Guard Corps as a Foreign Terrorist Organization, discussed in our blog post here.