By Oilprice.com 

The Trump administration is attempting to dial down the tension with Iran, lowering the risk of military conflict and pushing for diplomatic negotiations.

On Sunday, U.S. Secretary of State Mike Pompeo said that the U.S. was ready to negotiate with Iran with “no preconditions,” a shift in strategy after laying out a list of 12 hardline demands last year, a list that seemed to be a set of preconditions. Meanwhile, last week, President Trump stated that he was not seeking regime change in Iran, contradicting his national security adviser, John Bolton, who has repeatedly advocated for toppling the regime in Tehran.

“We’re prepared to engage in a conversation with no preconditions,” Pompeo said in Switzerland. “We’re ready to sit down with them. But the American effort to fundamentally reverse the malign activity of the Islamic Republic, this revolutionary force, is going to continue.”

Trump also seems to be softening the policy on Iranian oil exports. In April, the administration announced that it would not extend any waivers on countries buying Iranian oil, a move intended to take Iran’s exports down to zero, as long promised. “The policy of zero Iranian imports originated with Secretary Pompeo,” a senior State Department official told the Washington Post in April. “He has executed this policy in tight coordination with the president every step of the way. Because the conditions to not grant any more [waivers] have now been met, we can now announce zero imports.”

However, there are some cracks forming in that policy. According to the Wall Street Journal, the U.S. will allow some countries to continue to import oil from Iran, essentially under their old waiver allotments. As long as they do not breach the ceiling they were granted under the original waivers, the U.S. won’t crack down, the WSJ said.

“So once people have reached that cap of what was negotiated…that then would be the limit of the oil that we would permit to move through that would not be sanctioned,” Brian Hook, the U.S. Special Representative for Iran, said in a telephone briefing on Thursday with reporters. “We will sanction any efforts to import Iranian crude oil beyond the limits that were negotiated in the period that ran from November through May.”

Trump officials said no to an extension of waivers in April, but the comments from Hook sounds a lot like a waiver extension – even if the administration does not want to call it as such. Hook’s comments to the press raised more questions than answers. Later, he clarified, saying that any oil that was purchased and/or in transit before the expiration of waivers on May 2 would be allowed. Anything after, would not. So, maybe no extension after all?

The confusing strategy from the White House notwithstanding, the U.S. has pulled back from the brink in the last two weeks. Trump does not seem to want a military conflict, even if he is in favor of the “maximum pressure” campaign. If there is any discernible foreign policy strategy from Trump, it is the pursuit of some high-profile “deal,” however vaguely defined. His image of a deal does not always conform to that of the U.S. foreign policy establishment, which leads to confusion and mixed signals.

Still, as he has with North Korea, he tends to allow conflict to escalate to the brink of war, then he abruptly calls for a deal. It’s too soon to say whether or not that will occur this time around, but Trump is now highlighting his desire for negotiation, whereas up until recently he allowed John Bolton to pursue a more aggressive tact. “I really believe that Iran would like to make a deal, and I think that’s very smart of them, and I think that’s a possibility to happen,” Trump said in Japan last week. In early May, Trump told reporters “What I’d like to see with Iran, I’d like to see them call me.”

Iran isn’t simply going to pick up the phone because Trump wants to chat, not after getting hammered by crippling sanctions. And certainly not after inking a sweeping deal with Trump’s predecessor, only to see it torn up. Anyone at all familiar with the history of U.S.-Iran relations would not bet on Iran rolling over. Instead, most political factions in Tehran tend to close ranks in the face of American pressure.

So, the standoff will likely continue. Iran’s oil production fell by 230,000 bpd in May to 2.32 million barrels per day, according to Bloomberg. Export data, as opposed to production, is harder to come by, but Reuters puts shipments at 400,000 bpd in May. Iran’s oil exports may not go to zero, even if they continue to tumble. Saudi Arabia added 170,000 bpd last month, going a long way in compensating for the outages in Iran.

The irony is that Trump’s trade war with China (and soon, Mexico) is cratering the oil market as demand could take a hit. That actually gives Trump more room to tighten the screws on Iranian oil exports. Oil market tightness – and high prices – forced the U.S. to repeatedly back off in the past year. With recession fears setting in, there could be plenty of slack in the market, allowing Trump to pursue the zero-export policy. It’s just not clear how far his administration wants to go.

Link to article: https://oilprice.com/Energy/Energy-General/Is-Trump-Reversing-Course-On-Iran.html

By Nick Cunningham of Oilprice.com