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US Official: Ending China's Sanctions Waiver Has 'Marginal' Impact on Trade Talks

Assistant Secretary of State Francis Fannon is seen in this undated photo taken from video.
Assistant Secretary of State Francis Fannon is seen in this undated photo taken from video.

Days before the United States and China resume the latest round of trade talks, a senior State Department official said Washington’s unilateral decision to end a sanctions waiver for China, the biggest buyer of Iranian oil, has “marginal” impact on bilateral trade negotiations with Beijing.

Assistant Secretary of State for Energy Resources Francis Fannon told VOA this week the U.S., as the biggest producer in the world, is “a natural option” to supply oil and that China will find alternative suppliers when a sanctions waiver expires on May 2.

On Monday, the U.S. announced it was ending waivers on sanctions to countries that import Iranian oil, including China, India, Japan, South Korea, and Turkey. Since the sanctions were reintroduced, Italy, Greece and Taiwan have halted their Iranian oil imports.

Fannon spoke with VOA State Department correspondent Nike Ching on Thursday. The following is the edited excerpt of the interview:

VOA: After Monday’s announcement, China and Turkey have pushed back; China opposed the unilateral decision by the U.S.What punitive measures will those nations face if they don't comply? Can you lay out the sanctions they could face?

Fannon: Our focuses are uniquely focused on the Iranian regime, not the importers of Iranian oil. Iran uses the revenues that it generates from oil trade to fund terrorism and proxy wars around the world. And that is unacceptable. So our move is against the Iranian regime.

With respect to the importers, China among them, we're working with other partners around the world to ensure that they're adequately supplied. So we feel like the market is well balanced, that the right types of oil are going to be coming online and increasing production. You’ve seen some very strong statements from some of the producers and countries as well of some other international bodies.

With respect to what's going to happen after May 2, we can't certainly can't speak to future enforcement and how that's going to happen, but the secretary of state was extremely clear that there will be no SRE, Significant Reduction Exceptions, issued after the current expiration, and we feel very confident that countries will understand that, because they're going to get the oil that they need to advance their continue to advance their own development.”

VOA: So you are confident those nations will comply?

Fannon: We think we are. They have the volumes that they need. They have the types, of the grades of oil that they need. And the globe is well supplied with oil. So well supplied that Fatih Birol for example, the head of the International Energy Agency, made a statement speaking to this very point. And even speaking of the spare capacity available in the market. So we're in a very, very comfortable position. We see no reason why countries wouldn't want to support this, this initiative, because their needs are going to be met.

VOA: How about post May 2 enforcement? Some private tankers, owned by private companies, may choose to fly a different nation’s flag. Isn’t it difficult to catch?

Fannon: The point about evasion enforcement is an important one. We have had an unprecedented level of focus of evasion enforcement of our sanctions.

With respect to the flag vessels, yeah, the flagging process is a difficult one and it's hard to get a flag. It's not just something that routine matter. But through the US currently we've already on our sanctions on Iran we've already flagged over 70 vessels, because they've been involved in the illicit oil trade.

So what this, what this requires is for a potential illicit trader to consider doing that one time business with Iran- cause we will catch them and we will enforce our sanctions on them- to make that choice versus ever doing business conducting business with the United States or U.S. firm. That's quite a stark choice to make and we feel confident that they'll make the right one.”

VOA: The Qatari foreign minister was in the U.S. Thursday. What assurance did you get from Qatar, the Saudis or others regarding the oil supply in a timely fashion?

Fannon: We've been in consultation with a variety of producing nations, they've all made strong commitments to increase production, and also not just the total volumes, but also the types of oil.

You know, I mentioned Qatar. I just have to acknowledge Qatar petroleum, where are they increasing their investments here in the United States, they've invested an $8 billion, and a new US LNG export facility along with Exxon Mobil. That really underscores the belief that Qatar has in the U.S. to provide more supplies for the global market. We welcome those investments.

And I just think that in terms of ensuring adequate supply, the U.S. has a prominent role — we talked about some of the other countries and you name a few — but the U.S. is really now the biggest producer in the world and what we found time and time again as the U.S. industry is resilient and continues to increase production in excess of what anyone expects. Last year the US increased production by some 1.6 million barrels. And we’re on track to do that again this year.

One thing that's consistent is the US EIA, Energy Information Administration continues to under-assess on what the US producer is able to make. So we feel we're in a really good, really good place.

VOA: Are you asking those countries to buy oil from the United States?

Fannon: We're asking those countries to buy wherever they need to. We find that’s permissible. The world as well-supplied. What we’re saying here is that the U.S., as the biggest producer in the world, is a natural option as well as Saudi Arabia, etc.

VOA: The State Department works with the Treasury Department regarding Iran sanctions. Treasury Secretary Mnuchin is traveling to Beijing for the trade talks. How would this unilateral decision by the United States affect ongoing bilateral trade talks and trade relations with China?

Fannon: China is also a big, big customer of U.S. liquefied natural gas, as well as other things. We anticipate that energy might come up in the broader trade discussions, but those are — there's so many issues involved in the U.S.-China bilateral relationship, it's an important relationship.

And so, I suspect the Secretary Mnuchin will certainly have a lot of, lot of options for consideration that they'll be working through. I can't speak to how this decision would affect it. This decision — this issue is such a relative [small] scale of our relationship and other issues, economic issues at play here. I think it’s pretty marginal at best.