Special Representative for Iran
Assistant Secretary Francis R. Fannon
Bureau of Energy Resources
April 23, 2019
Moderator: Greetings to everyone from the U.S. European Media Hub in Brussels. I would like to welcome all of our participants here today as well as the journalists who have called in to participate in this call. This call will focus on Secretary Pompeo’s announcement that the United States will not grant any further significant reduction exemptions to Iranian oil importing jurisdictions.
We have two speakers for today’s call. They are Brian Hook, who is the U.S. Special Representative for Iran and Senior Policy Advisor to the U.S. Secretary of State, and Francis Fannon, who is the Assistant Secretary in our Bureau of Energy Resources at the State Department.
We will begin today’s call with opening remarks from Special Representative Hook. We will try to get to as many questions as possible during the time that we have. A reminder that today’s call is on the record.
With that, I will turn it over to Special Representative Hook.
Special Representative Hook: Thank you, Kathy. Thanks everybody for being on the call.
Our goal has always been to get countries importing oil from Iran to zero as quickly as possible, and last November when we reimposed our sanctions we had a fairly tight oil market and at the President’s direction we granted a handful of oil waivers. That was done because we weren’t looking to grant exceptions to our campaign of maximum economic pressure. But we also didn’t want to put a lot of volatility in the oil market.
Now here we are in 2019 and all forecasts are supply exceeding demand. We’ve also been working very closely with the Saudis and the Emiratis and other oil producers to ensure that as we take off the remaining one million barrels of Iranian crude being exported that those barrels are offset so that it ends up being a sort of net neutral.
We have imposed the toughest sanctions ever on the Iranian regime. We’re going to continue to apply pressure on the regime until its leaders decide to start behaving more like a normal nation and less like a revolutionary cause.
We had made going after oil a priority because that historically has been the regime’s single largest source of revenue. It uses funding from its oil exports to support terrorist proxies. This is whether it’s Hezbollah in Lebanon, its own operations under the Quds Force in Syria, the Shia Militias that they fund and support in Iraq. The same with the Houthis in Yemen. So for everybody who is concerned about a more peaceful and stable Middle East, the best and surest path to do that is to deny the principle driver of instability the revenue that it needs to execute its foreign policy in the countries that I just mentioned.
We have been doing this all along in a way that meets our national security objectives but also maintains market stability. Assistant Secretary Fannon is on the call who is also happy to answer any questions about the measures that we have taken to ensure that energy markets remain stable and well supplied.
We see a very good impact that our pressure is having in the region. Even before yesterday’s announcement of zero, we have denied the regime direct access to more than $10 billion in revenue since May. That works out to a loss of at least $30 million a day and that’s only with respect to the oil.
When we deny the regime this revenue, it means less money to spend on missiles, on terrorism and on proxies like Hezbollah.
In March the leader of Hezbollah, Hassan Nasrallah, publicly appealed for donations for the first time ever. In the last several months he has been forced to undertake unprecedented austerity measures because money from Iran is not flowing in as it once did. We have seen reports of Hezbollah fighters receiving half of their pay and Hezbollah is not alone in feeling the strain from a lack of funding from Iran. Iranian proxies in Syria are also experiencing a lack of funding from Tehran and fighters are going unpaid. That’s a good thing. And the services that they once relied upon are drying up. This means that our pressure is working and why we think it is important for other countries around the world to support this strategy of denying the regime revenue that it needs.
With that, I think Assistant Secretary Fannon and I are happy to take any questions.
Moderator: Thank you for those remarks. We will now begin the question and answer portion of today’s call. Our first question comes to us from Deger Akal who is joining us from Deutsche Welle Turkish Service.
Question: Mr. Hook, you have elaborated on concerns. One of the countries which has concerns is Turkey. The Turkish Foreign Minister, Mevlut Cavusoglu, has criticized your decision to end sanction waivers for countries importing Iranian oil, and he elaborated on, he said that this will not serve regional peace and stability. Turkey is a neighboring country to Iran and is depending on foreign energy. How does your administration address or evaluate Turkey’s concerns?
And another question regarding Turkey and Iran working on our special transactional channel in order to continue trade despite U.S. sanctions. What is the U.S. response to such a move?
Special Representative Hook: I’ll take your questions in reverse order. We continue to not see any corporate demand for a special purpose vehicle. Any business that is given a choice between the American market and the Iranian market will almost completely, I can’t think of any, there are very few exceptions to this, anybody who would choose the Iranian market over the American market. And it also, for this mechanism to work, it requires Iran to comply with FATF standards. Because you have the European vehicle but you need to have a mirror image on the Iranian side, and we have not seen any evidence that Iran wants to comply with FATF standards because their economy is designed to be opaque. They do not want the press or other nations to be able to follow the money.
So there has been a lot of talk over many many months about a special purpose vehicle, and it has still not become operational partly for the reasons I mentioned and partly because we don’t see much corporate demand for it.
With regards to Turkey and your first question, it is hard to imagine a peaceful Middle East without a peaceful Iran. And they are the last revolutionary regime on earth. It is an expansionist foreign policy that is trying to create a Shia corridor of control, and it replaces national identities with sectarian identities and foments violence around the Middle East. It also engages in proxy wars. If we want to get serious about stopping this kind of regional aggression, we have to go after the oil revenue and other means of revenue that the regime uses to sustain its foreign policy. So we just have a different assessment of what we think will contribute to regional peace and stability.
Iran likes to behave, they have this pattern of behavior where they essentially say to countries if you don’t allow us to behave like we want to behave, we’ll give you even more of the behavior you don’t like. And we think that when people play by Iran’s rules, Iran usually wins. And we need to change the paradigm.
The Iranian regime behaves very much like a religious mafia. Some of the features of a mafia include threats, extortion and blackmail. We think the world needs to understand these kinds of tactics and to oppose them so that they stop their regional aggression and destabilizing activities.
A/S Fannon: This is Frank Fannon. Just to follow up on that.
I think the point on the energy question with Turkey. Two points. First, the target of our sanctions policy is the Iranian regime, as Brian noted. It’s not the importers. And so what we’ve been doing through the course of our, over the last year plus, is to help countries find alternate sources of oil and in that case we’ve worked significant diplomatic overtures and helped on the technical side with Iraq to boost their output and are very pleased to see significant volumes of Iraqi oil now being imported into Turkey. Those overtures will continue so that Turkey, as well as all of the importing countries, see and are able to obtain the oil that they need to continue to develop their economies. Thank you.
Moderator: Thank you.
Our next question comes to us from Shadia Nasralla with Reuters.
Question: Hi, thanks for doing the briefing.
My question is that China has described its cooperation with Iran as open, concerned and legal and that should be respected and has heavily criticized the U.S. for its step. So what is your response to that characterization of China’s dealing with Iran? And what will you do if China continues buying lots of oil from Iran?
Special Representative Hook: I don’t think we have to entertain hypotheticals, partly because they’re hypotheticals and they haven’t come to pass. But partly because we have seen over 20 nations go to zero since May, and there hasn’t been any evidence that any of these countries are threatening or even thinking about evading or risking American sanctions.
What we have done is presented nations with a choice. You can do business with the United States or you can import Iranian crude oil, but you can’t do both. And when oil companies, oil exporters, look at the economics of that decision it’s not a hard decision to make. It’s simply not.
So we don’t anticipate having — of course we will sanction any sanctionable activity, and we’ve already done that. Since the time our sanctions were reimposed from the Iran Nuclear Deal in May, we have already sanctioned those who have tried to, who have tried to evade oil sanctions. We will continue to do that. But I think we should also just be mindful of the fact that we don’t think it’s in anyone’s interest for any nation to risk that because the cost/benefit is simply not there.
Moderator: Thank you.
For our next question we will turn to Deena Essa who is with Alittihad Newspaper in the UAE.
Question: Hi. I’m asking about what are the U.S. administration is going to do towards the manipulation of the Iranian government towards the sanctions? And we have seen a lot of manipulations through the past few months to find a way to exports of oil.
My second question —
Special Representative Hook: I’m sorry. Could you get closer — we can’t hear you. You’re too far away from the microphone.
Question: Okay. I’m asking about the manipulation of the Iranian government. What are you going to do? Because it’s trying to manipulate the U.S. sanctions for the past few months. And what are you going to do with the companies that have announced that it will continue dealing with Iranian exports and imports regarding to the oil?
Special Representative Hook: I think if I understand your question correctly, which is what will we do if people violate our sanctions, any companies. If there are any individuals or entities who are engaging in sanctionable conduct, we will sanction it. And that’s been our consistent policy ever since.
This administration has taken an entirely different approach to enforcement of sanctions that really doesn’t have much historical precedent with respect to Iran. I think in prior administrations, there were a number of efforts to evade sanctions and I don’t think that those were enforced very strongly.
We have dedicated new resources within this administration to tracking efforts to evade sanctions and then imposing sanctions on those who try to violate it. That work will continue.
Moderator: Thank you.
For our next question we will turn to Meghan Gordon who is with S&P Global Platts.
Question: Since yesterday’s announcement analysts are now looking at potentially $80 per barrel of oil by the third quarter when supply is forecast to be very tight. And then you also have the oil market confronting the IMO 2020 rules at the end of this year. Does the administration have the appetite for higher gasoline and diesel prices here in the U.S. come Labor Day?
Special Representative Hook: We’re speaking to, in the analysis that we’ve undertaken and the coordination with other producers around the world as well as the strong recognition of U.S. production continuing to increase. Just last year an increase of 1.6 million barrels of added production. EIA’s projecting a similar trend line this year. And as a matter of course, EIA continues, it seems to underestimate performance. They always have upward revisions.
We’re very pleased with the state of the market and we see the trend lines are extremely positive. And having the commitments from other major producers is meaningful. It is effectively reversing the voluntary curtailment that they had undertaken.
I mention all of that because your question was directed specifically to price and price at the pumps here in the United States, and those are not the focus areas of our foreign policy agenda. The domestic price implication is a different question that we can’t speculate on here. Thanks.
Moderator: For our next question we’ll take a question submitted in advance by Mohamed Ataya with Masrawy.com in Egypt. He asks?
Question: Will the U.S. depend on Saudi Arabia to fill the gap in the oil market?
Special Representative Hook: I just spoke a little bit about that point. I think Saudi Arabia has made statements, it was referenced in the White House Statement, and of course Minister al-Falih made his own statement yesterday. They are a partner in this. They recognize that Iran creates unrest and is a threat to global stability in the Middle East in particular, and they are a partner with us in this effort. And part of that is their commitment to increase both production of appropriate volumes but also the types of oil needed by respective importers.
We’re very pleased by that and we’re moving forward with our policy. Thank you.
Moderator: We will now go to Shabtai Gold who is with dpa the German Press Agency.
Question: Hi, thank you for taking my questions.
I wanted to ask specifically about what Iran might do in response to these sanctions that you’re announcing. Are you at all concerned that they might go back towards seeking a nuclear weapon? And also are you concerned that Syria, which is being impacted by fuel shortages in part it seems related to hardships in Iran, might see state collapse at some point? Thank you.
Special Representative Hook: Iran on a fairly regular basis makes sort of extortionist threats and blackmail demands. This is part of the regular course of their business.
I saw I think it was yesterday that they’ve threatened to close the Strait of Hormuz. They have threatened to close the Strait of Hormuz more times than I can count. The United States military will fly, sail and operate wherever international law allows. That’s partly to ensure protection of the global commons so that it can be safe for commercial and non-commercial traffic.
Iran is an outlaw regime and throughout their 40 years they generally try to hold countries hostage to blackmail, and they try to compel countries not to take actions they might for fear of Iranian reprisals. And the international community needs to get its head around this sort of mafia style behavior, and we cannot allow ourselves to prevent ourselves from doing the right thing because of Iran’s threats to become even more dangerous than they otherwise would be.
So threats come out on a regular basis. And it’s a purely hypothetical question you’re asking. We track, of course, these things but the threats are nothing new.
Moderator: Thank you.
For our next question we will turn to Tamam Abusafi who is with Alayam Newspaper in Bahrain.
Question: This is Tamam Abusafi from Alayam Newspaper, Bahrain. I’m not sure if the sound is very clear.
My question is about what you expect about the impact of the sanctions Iranian oil, in Iranian
in Syria? And [inaudible] of Bahrain was asking last week that we need more cooperation with the United States to assist them to, assist the countries in the region who can deal with Iranian terrorists in the future. So I would love to hear your comments about two points. Thanks.
Special Representative Hook: Kathy, did you hear the question? I couldn’t quite hear it.
Moderator: Unfortunately, I didn’t. Could you just repeat the very, just one question if you could, because we’re running out of time.
Question: I would repeat my first question, what you expect about the effects of sanctions in Iranian oil [inaudible] in Syria.
Moderator: I believe it was the impact of sanctions on Syria, the Iranian oil sanctions, what impact that would have on Syria.
Special Representative Hook: We did sanction a couple of months ago, we did sanction an effort of oil smuggling to fund the IRGC Quds Force operations in Syria. It was an effort by a combination of Russian and Syrian entities to try to sell Iranian oil on the black market so that they could help fund IRGC Quds Force operations, and I think also Lebanese Hezbollah.
We sanctioned that whole supply chain to try to deter. This is part of sanctions enforcement which I talked about earlier, to try to deter sanctions evasion. So that has been our principle focus at least on this side. I can’t speak to — I mean our Syria envoy, Jim Jeffrey, has been very active there on the diplomatic side, working toward an irreversible political process that has as one of its features all forces under Iranian control leaving Syria. That continues to be a priority for the United States.
Moderator: Thank you.
Our next question comes to us from Amy Williams with the Financial Times.
Question: Hi. I just wanted to be clear on your response to the China criticism already mentioned. You’re saying you’re ready to impose sanctions on any Chinese companies that break your Iran sanctions. Is that correct?
Special Representative Hook: I didn’t say that. What I said was that it is the policy of this government to sanction any sanctionable behavior.
Question: Is that including from China?
Special Representative Hook: I didn’t say that. You’re putting words in my mouth. What I said was that we’ll sanction any sanctionable behavior.
Because countries when they sit down and do the basic sort of economics of the decision, whether it’s better, whether it’s in their economic interest to continue to have access to the global financial system and to have access to the American markets, versus importing Iranian crude which is not exotic and is compatible with many other grades of crude oil that can be imported from other countries. When they look at that decision point, it’s not a hard decision to make.
I know the media likes to try to forecast what the next fight will be, but in this case we have not seen any countries who desire to import Iranian crude oil over having access to the global financial system.
Moderator: Thank you.
Our next question comes to us from Alexandra Brzozowski with Euractiv based in Belgium.
Question: Hi. I would have one quick question, whether you have contact from the EU side and whether you received any reaction from Brussels yet regarding this step. And also, regarding France because they said this morning that Iran and the
mechanism is making progress. What would be your reaction to this statement? Thank you.
Special Representative Hook: I think by Brussels you probably mean, I’m not sure if that means Frederica Mogherini or if it means the E3 or all 28 members of the EU. I’m not sure which part of Brussels.
I think we lost her. Anyway, I’ll take a stab at it.
I work with the E3 on a very regular basis to stay in touch with them. I’m in communication with them every week. The Secretary of State is in regular touch with his E3 counterparts. We continue to agree on more than we disagree. We obviously disagree about the Iran Nuclear Deal, but I think if you look at the record of European action since May of last year, it is a good record of trying to deter Iranian terrorism in Europe and they are also united in their opposition to Iran’s ballistic missile testing. I refer you to many letters from the E3 to the UN Security Council condemning Iran’s ballistic missile testing and its space launch vehicles that they have been testing over the last few months. The launches there.
So we will continue to work with the E3 as we have. They are strong allies to the United States. And they also understand that just because Iran is in compliance with the Iran Nuclear Deal, does not mean that this has somehow eliminated the non-nuclear threats that Iran presents to peace and security.
Moderator: Thank you for that.
Unfortunately, that was the last question we have time for. Special Representative Hook or Assistant Secretary Fannon, do either of you have closing words you would like to offer?
Special Representative Hook: None from me. Frank?
A/S Fannon: No. I think that we are in a very strong position relative to the oil supply situation in terms of markets. I think you’re going to hear more of that, and I would encourage, I know [Fakhi Barral] with IEA, I think he’s speaking to this about the appropriate level of world balance. I think we see a very strong forward trend, particularly about U.S. production. I think this is an historic point. We’ve been telegraphing going to zero for a year now to allow importers to make the necessary adjustment, and we’re assuring that there are sufficient volumes that no one’s going without.
It’s a good day. Thank you.
Moderator: I want to thank both of our speakers for joining us and thank all of our journalists for participating and for your questions.