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US risks roiling oil markets in trying to tighten sanctions

Increasing pressure on Iranian, Venezuelan exports may constrict global supplies, raise costs in a slowing economy

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Juan Guaidó, the Venezuelan opposition leader, giving a a speech in Caracas. US officials must decide whether to tighten sanctions on Venezuela to try and oust President Nicolás Maduro from power.

Washington

THE Trump administration has reached a critical juncture in its efforts to tighten US oil sanctions against Iran and Venezuela.

By pressuring China and India to end or sharply reduce oil purchases from Iran and Venezuela, US officials are seeking to cut off a key economic lifeline for what the administration considers to be two rogue nations that threaten the stability of the Middle East and Latin America.

But they must do that without roiling global markets, further straining relations with China and India or raising gasoline prices in the United States.

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The dilemma has led to a fierce debate within the Trump administration, which is set to decide by May 2 whether to extend waivers allowing China, India and three other nations to buy Iranian oil. A halt of oil shipments would constrict global oil supplies and increase costs at a time when much of the world economy is slowing.

"If you want to keep gasoline prices low, it doesn't seem like the best strategy is to put maximum pressure both on Venezuelan and Iranian exports," said Helima Croft, global head of commodity strategy at RBC Capital Markets and a former CIA energy analyst.

With 2020 elections looming, US President Donald Trump is keen to tamp down gasoline prices, especially as summer approaches, when energy use surges and Americans take to the road. Since mid-February, retail gas prices have risen, and the global benchmark price for oil has surpassed US$70 a barrel, about what it was before Mr Trump withdrew the United States from a nuclear agreement with Iran in May.

"Oil prices getting too high. Opec, please relax and take it easy," he tweeted in late February, urging the global oil cartel to ramp up production. "World cannot take a price hike - fragile!" Both Iran and Venezuela are members of the Organization of the Petroleum Exporting Countries.

The Trump administration has been trying to force major political change on Iran, withdrawing from a 2015 nuclear deal and imposing sanctions as punishment for actions in the Middle East that Washington considers unacceptable. It also is pressuring Venezuela with sanctions as US officials seek the ouster of President Nicolás Maduro from power.

But leaders in Iran and Venezuela have proved durable, even as their main source of revenue - oil exports - was slashed.

Mr Trump's decision to withdraw from the 2015 deal sent Iranian crude exports plummeting more than 25 per cent, or around 600,000 barrels a day, between June and September.

In November, the US granted six-month oil waivers to China, India, Turkey, South Korea, Japan, Taiwan, Greece and Italy.

By December, it was clear US sanctions were having a big effect. Taiwan, Greece and Italy never used the waivers and ended their Iranian imports.

But now, Iranian exports are recovering. In February and March, Iran exported about 1.3 million barrels a day. That was a notable rise from December, even if it was still half of what was exported in April 2018, the month before Mr Trump withdrew from the nuclear deal.

China alone is importing more than 500,000 barrels of Iranian crude a day, near its average import level before the November sanctions.

India is Iran's second-biggest oil customer. It has stuck to a commitment to Washington to import no more than 300,000 barrels a day, but has not steadily decreased the purchases.

India is also dependent on oil exports from Venezuela. But Venezuela's largest customer was the US, and the Trump administration in January imposed sanctions to end those sales and starve Mr Maduro's government of revenue. The US and 53 other nations recognise Juan Guaidó as Venezuela's interim president and want to force Mr Maduro from power.

The administration had hoped that a new government in Venezuela would increase oil production and exports and, in turn, help Washington squeeze Iran. Instead, India and China have bought much of the Venezuelan oil that otherwise would have gone to the US.

India pays Venezuela for its oil in cash, at a 20 to 30 per cent discount below prevailing world prices, while China agrees to write off Caracas' debt. Rosneft, the Russian oil company, has been providing fuel supplies to Venezuela. That has helped Mr Maduro dig in.

"On the aim of going to zero exports, there are many potential downsides," said Wendy R. Sherman, a former top State Department official who helped negotiate the nuclear deal with Iran. "You don't want to tank the world economy. You don't want to send the price of oil sky-high."

Tensions with China could threaten trade talks and cooperation on North Korea - both central pillars of Mr Trump's diplomacy. Turkey, a Nato ally, may become more dependent on Russian energy if it is pushed to buy less Iranian oil. NYTIMES