Via Teleconference

2:35 P.M. EDT

MS. PELTON: Hey, good afternoon, everybody. This is Erin Pelton. Thanks for joining us for today’s background call on Iran sanctions. We know there’s a lot going on, so we’ll try to keep this brief. But here with me today I’ve got four officials to discuss sanctions news.
 
We will be doing this call on background, as attributable to senior administration officials. And with that I’ll go ahead and turn it over to senior administration official number one. He’ll go ahead and provide some opening remarks.

SENIOR ADMINISTRATION OFFICIAL: Great. Thanks, everybody, for joining the call. I’ll just make some opening comments and then turn it over to my colleagues to talk a little bit more in depth about our sanctions efforts.

But today marks two important milestones in our continued international effort to apply pressure on Iran to meet its international obligations with respect to its nuclear program. We’ve obviously been building a very robust and comprehensive sanctions regime for some time now, and we took another very important step forward today in that effort. First, as of today, and as a result of the President’s determinations on March 30th -- June 11th on the availability of non-Iranian supplies of oil, any foreign financial institution based in an economy that has not been excepted from our sanctions, and knowingly conducts a significant transaction with the central bank of Iran for the sale or purchase of petroleum or petroleum products to or from Iran, is subject to U.S. sanctions. So, again, those countries that have not received exceptions will -- and those institutions within those countries will not be subject to those sanctions.

The second, as you saw in a statement from Secretary Clinton out of the State Department, Secretary Clinton has determined, under section 1245 of the 2012 National Defense Authorization Act, that both China and Singapore have each significantly reduced the volume of crude oil purchases from Iran. So as a result, China and Singapore are excepted from the NDAA sanctions for the next 180 days. China and Singapore obviously join a list of countries that have received exceptions from the United States over the course of the last several weeks. This decision further represents the success of our sanctions policy, and our effort to build an international coalition to reduce Iran’s oil exports, thereby applying significant pressure on Iran.

We’ve seen that the sanctions on Iran’s central bank and oil sector are having a significant effect on the Iranian government and its economy. Just yesterday you saw an Iranian official admit that sanctions have led, according to their own estimates, to a 20 to 30 percent reduction in sales. According to the International Energy Agency, Iran’s crude oil exports in 2011 were approximately 2.5 million barrels per day, and have dropped to roughly 1.5 million barrels per day this year -- a reduction that has and will continue to cost the Iranian government billions of dollars, again, thereby having a significant impact on the revenue that the government can draw from.

We will continue to implement these sanctions fully to achieve additional reductions, as well as to continue to work with other oil producers to encourage increased production and development of their capacity so as to, again, maximize the impact on the Iranian government -- deny the increase in oil prices that could allow them to make up for lost revenue.

While we will continue to monitor closely the developments in the oil markets, including supply, demand, inventories and spare capacity, to assure that the market can continue to accommodate a reduction in purchases from Iran, we have every intention of maintaining these sanctions on the Iranian government, keeping in mind, of course, for instance, that we have the EU oil embargo that is coming fully online here, a process that will continue in the coming days, on July 1.

So the Iranian regime’s choice here has been to flout its international obligations, but they are paying an increasingly high price for that choice. And with these steps today and the steps we’re prepared to take going forward, the costs are only going to rise further for Iran. So it’s in their interest -- the Iranian interest -- to take concrete steps to address the international community’s concerns and to abide by their international obligations. They have an opportunity to do so through the P5-plus-1 negotiations. They have not yet done that. But we will continue to reiterate to the Iranian government that we need to see concrete actions by them to come in line with their obligations, or else we are going to continue to ratchet up these sanctions.

Now, just with respect to the exceptions today, in particular the exception for China -- China has made clear that it is opposed to Iran developing and possessing nuclear weapons, and it supports our dual-track approach of diplomacy and pressure as well. China has been an important partner in the P5-plus-1, and China has voted on four occasions to impose sanctions on Iran in the U.N. Security Council.

Just with regard to the exception today, on June 27th, an authoritative statement was published on a China energy website, and I’d draw your attention to it -- it’s www.china5e.com. In this statement, the Chinese site indicated that there has been a structural change in China’s crude oil imports due to the downward pressure on the economy. These changes include a 25 percent year-on-year reduction between January and May of crude oil imports from Iran to China. The statement on this website noted that there would be a significant reduction in crude oil imports from Iran for 2012 relative to last year as well.

As is China’s practice, its imports of crude oil will be reflected in China’s customs data, which is publicly reported on a monthly basis. We will, of course, continue to monitor multiple data sources on this subject. China has taken these actions for its own commercial and energy security reasons. Still, these actions very much align with our shared global interests and allow us to move forward with the exception we’re moving forward with today, and again, it is a part of efforts that have been undertaken by the international community to send a clear message to Iran that they need to come in line with their international obligations.

Again, we’ll continue to work with China and our P5-plus-1 partners, and all those likeminded countries who have joined us, in presenting this very clear choice to Iran of either coming in line with their obligations or facing isolation.

With that, let me turn it over to my colleague to go into some greater detail on the effect of our sanctions and our efforts to build this international coalition.

SENIOR ADMINISTRATION OFFICIAL: Thank you. I want to address not just the impact of the NDAA sanctions against the central bank of Iran and the oil sanctions, but the broader impact of our sanctions regime. And in pursuing the sanctions regime, we’ve had the strong support of a broad coalition of countries all over the world who have really stood united in trying to convey the signal to Iran that it’s got to get serious about limiting its nuclear program and addressing international concerns if it wants these pressures to be alleviated.

The sanctions that the U.S. and its international partners have imposed on Iran are having a severe and growing impact. The financial sanctions have been especially effective, and my colleague will address that in a couple of minutes. Iran’s energy sector is taking a very hard hit. It was just pointed out by my colleague that decisions by all the major importers of Iranian crude oil to significantly reduce their purchases will mean a sharp drop in Iran’s crude oil exports. This will cost Iran at least $8 billion in lost revenues each quarter, according to the IEA. Reductions in Iran’s oil exports and oil revenues can be expected to increase as the oil sanctions continue to take effect.

Sanctions against investments and the provision of goods and services for Iran’s oil and gas developmental activities have also had a significant impact. All major European and Japanese energy companies have pulled out of Iran’s energy sector. Iran’s inability to gain access to capital and technology has led to a steady decline in its oil production, which is devastating in the long run for an economy so dependent on oil revenues.

Sanctions have also had a crippling effect on Iran’s transportation sectors. Most European and Asian jet fuel providers have cut off supplies to Iran Air, which has provided support to Iran’s proliferation activities. As a result, a majority of airports previously serving Iran Air now refuse to do so. Major shipping lines such as Maersk have stopped calling on Iranian ports due to U.S. and multilateral sanctions. Reputable providers of flagging, insurance and classification services have stopped providing such services to Iran’s main shipping line.

Major indicators of economic activity are bringing more bad news to Iran. Inflation is well above 20 percent. Some estimates go much higher. Iran’s currency, the rial, has lost about 40 percent of its value since November 2011. Unemployment figures are increasing.

In short, sanctions are having a major adverse impact on Iran’s economy and things will only go from bad to worse unless Iran gets serious about addressing the international community’s concerns about its nuclear program.

SENIOR ADMINISTRATION OFFICIAL: Do you want to pick up from there?
 
SENIOR ADMINISTRATION OFFICIAL: Sure, happy to. Thanks, guys. Let me just pick up on some of the important points that my colleague just made, and I think that you framed it in exactly the right way. It’s important to look at the financial component of the sanctions which come in today in the context of what has been a broad, financial campaign against Iran that's been going on for the last several years. And what today represents is an important step forward in that broad multiyear, multilateral campaign.

We have already imposed very substantial sanctions on 24 of Iran’s largest banks. And those banks, as a result, are largely cut off from the international financial system. In addition, due to steps that the Europeans have taken, those banks are additionally cut off globally from the SWIFT messaging system, which makes it extremely difficult for them to transact business anywhere in the world.

Whereas just a couple of years ago, Iran was doing business on a fairly regular basis in Europe and Asia and the Middle East, all of these major international financial sectors are closing off to Iran, and now with the sanctions that come into effect today, these same restrictions are going to start kicking in with respect to the central bank of Iran.

So what we’re seeing -- what we are seeing and continue to see increasingly as it moves forward is it become increasingly difficult for Iran to support the rial. And already since September, the rial has lost 40 percent of its value. It’s going to become increasingly difficult for Iran to finance its trade.

Back in January of this year when we designated Bank Tejerat, that was the remaining large Iranian bank that was accounting for a significant portion of Iran’s trade; with Bank Tejerat now designated and with the central bank of Iran increasingly unavailable to the Iranians to finance its trade, it’s going to become very difficult for Iran to finance its trade. It’s going to become increasingly difficult for Iran to access its foreign reserves and to generally manage its economy.

And if you look at the Iranian economy compared to similar economies of other oil-exporting nations, you can see that the Iranian economy is significantly underperforming to say the least. And I think the numbers on that speak for themselves.

So we are going to in the U.S. government from this day forward with respect to the financial sanctions that come into effect today be monitoring extremely closely the international financial system throughout the world to ensure that banks around the world are complying and to ensure that banks around the world are not doing prohibited business with the central bank of Iran. And you can be sure that as we detect -- if we detect and as we detect violations, we will be swift to act.

So that's what I have, but I’m happy to answer questions.

SENIOR ADMINISTRATION OFFICIAL: Great, thanks, everybody. With that we’ll be happy to take your questions.

Q Hi, thank you -- from Turkish Daily. I have two quick questions. One is June 3rd [sic] there will be a meeting in Istanbul, P5-plus-1. Are we supposed to expect any meaningful outcome? Or what kind of effect are we expecting for this meeting? And the second is, again, on the Turkish role, there were some disagreements in the past, but it seems in the recent times two allies -- you are working better with Turkish ally. Could you please speak to that? Thank you.

SENIOR ADMINISTRATION OFFICIAL: Sure, I can speak to that and see if my colleagues have anything to add. On the upcoming meeting in Istanbul, it was agreed following the last P5-plus-1 meeting in Moscow that experts would continue a discussion on some of the proposals that have been made in Istanbul. I think our expectations are that this will be an opportunity to sit down at the expert level and review the various proposals that have been made.

Our position, the United States together with the P5-plus-1, has been that the onus is on the Iranian government to demonstrate a sense of purpose, a seriousness in these discussions and to indicate that they are prepared to take concrete steps to come in line with their international obligations. They have yet to do so. Istanbul is another opportunity for Iran to move in the right direction, again, which is action to come in line with their obligations.

In the absence of Iranian steps in that regard, they're going to face increased pressure, and I think that's the message that we’re sending today; that even as the P5-plus-1 negotiations are ongoing, we are going to continue with our efforts to apply additional pressure on the Iranian government so they face a clear choice: continued pressure and isolation if they don't meet their international obligations, or a path towards meeting their international obligations that can allow them to come back into the community of nations. So that's our expectation for Istanbul as we head into July 3rd.

On the Turkish question, Turkey has been an important partner on the Iran issue as well as a broad range of regional issues. Turkey, of course, is one of the nations that has taken steps to reduce its imports of Iranian oil. Because of the steps Turkey has taken, they’ve received an exception from our sanctions.

So we’ve had close cooperation and very regular dialogue and discussion with our Turkish allies on the Iran issue, and believe that they’ve been a constructive partner both in terms of supporting the sanctions regime that we have in place but also in terms of supporting a diplomatic track that could allow Iran to come in line with its obligations.

I don't know if you have anything to add on Turkey or not.

SENIOR ADMINISTRATION OFFICIAL: Just one thing, not on Turkey, but on the P5-plus-1. At the Baghdad meeting over a month ago, the P5-plus-1 countries collectively put forward a balanced and reasonable proposal that addresses the most pressing security threats from Iran’s nuclear program. I’d say it was a balanced proposal. It followed the approach of step-by-step efforts with reciprocal benefits for both sides, again, agreed by all six governments involved on our team.

So far we haven’t gotten a serious Iranian response to that proposal, and we urge Iran’s leaders to focus on that and come back with a serious response.

SENIOR ADMINISTRATION OFFICIAL: Great, we’ll take the next question.

Q Thanks for doing the call. Two questions. One, to what extent do you believe that the reduction in China’s purchases of Iranian petroleum this year reflected the Chinese pricing dispute with Iran? And did China give you any commitments with regard to making additional reductions in its Iranian purchases over the next 180-day period?

SENIOR ADMINISTRATION OFFICIAL: Sure, I’ll say a couple things, and see if my colleagues have anything to add. First of all, as I noted, China has taken a 25 percent year-on-year reduction between January and May of its crude oil imports. Now, China again takes actions with regard to its purchase of Iranian oil for a variety of reasons, including its own commercial decisions, its own energy security reasons. But the fact is, is that we do see that reduction between January and May.

What we have now also is what we believe to be an authoritative statement on this China energy website, where the Chinese are indicating that a structural change in their crude oil imports will allow for these types of reductions.

So again, I think we’ve had a regular dialogue with them. I think there's an understanding on the Chinese side of the seriousness with which we’re going forward with this. We now have a 180-day exception granted. Again, we’ll be able to continue to monitor the data that is publicly available on crude oil imports, and we’ll continue our discussion with the Chinese on steps that can be taken to continue to reduce Iranian oil imports. But again, we are basing our decision on what we see to date, and also a statement indicating the impact of crude oil imports in the context of their downward pressure on their economy.

I don't know if you have anything to add to that.

SENIOR ADMINISTRATION OFFICIAL: My colleague raised a question about the first part of this year. And the authoritative statement that's been alluded to talked about a 25 percent year-on-year reduction from January to May, and that aligns with our own thinking about the magnitude of cuts in the first part of this year.

I don't want to speculate on exactly the reasons for that rather sharp decline, but it’s clearly there. And also the authoritative statement talked about the remainder of the year, and indicating that for the remainder of 2012, there would be significant reductions. So it was on this basis the Secretary took the decision to grant this exception to China.

Q Thanks. The initial round of exceptions came in March, but it was already clear that China had cut. So I was just wondering why it took this long. Was the administration trying to achieve something, and did it get that thing it was trying to achieve or not? Thank you.

SENIOR ADMINISTRATION OFFICIAL: Sure, I’ll just -- a couple of comments. Again, the 25 percent year-on-year reduction encompasses a time period from January to May, in terms of crude oil imports, so a significant portion of the first half of this year.

What we see in the statement, again, is that this significant reduction would also extend through the year so that for 2012 there would be a significant reduction relative to last year. So you have both the data from the first part of this year and then the indication of a continued significant reduction through the rest of the year.
 
We’ll continue, again, to talk to the Chinese about this. The exception is for 180 days. But again, the Secretary had the confidence on this basis to move forward the exception.

I don't know if you have anything to add to that.

SENIOR ADMINISTRATION OFFICIAL: Our colleague would like to say something.

SENIOR ADMINISTRATION OFFICIAL: Just it’s also that in this, we try to -- I know that you said that in March it was already known, but in this industry, as you know, there's a lot of time lags in reporting periods. And looking at this data, we wanted to be 100 percent sure that we were where we were with the data and information on what exactly the reductions were.

Q Hi. Thanks so much for doing this call. Two quick questions. I’m wondering if you could say what happens when the 180-day waivers run out. Will the U.S. require China and other countries to make further cuts to the imports, or can they carry on the same reduced level that won them the waiver in the first place? And I’m wondering if you could offer some more specifics on reasons for the Singapore waiver. Thank you.

SENIOR ADMINISTRATION OFFICIAL: You guys want to take that?

SENIOR ADMINISTRATION OFFICIAL: Let me start with Singapore. Singapore has, as you saw from their government announcement a few weeks ago, that they have -- in May their imports went to zero. They’ve made a decision, again, based on their own diversification of resources, to reduce their and terminate their imports of crude oil going forward. And I think that was the main basis of the decision, the ultimate decision, to go to zero imports as of May. This decision was taken in April.

SENIOR ADMINISTRATION OFFICIAL: In terms of the exception and the renewability of it, the law provides that this 180-day exemption period is renewable, but it requires a determination that further significant reductions are being made.

Q Thanks, everybody. I guess my biggest question -- I’m interested to know how the process of the request and then the review of these exemptions -- how that has gone about. So if you could please discuss how that goes. Also, which other countries have received this exemption, and has there ever been a time where someone requested one, and you said no?

SENIOR ADMINISTRATION OFFICIAL: Sure, well, I can start and then my colleague may want to chime in here, as well.

In the first instance, we have deliberately set about implementing these sanctions in a way that would have the maximum impact on Iran. And so that of course includes working to get major oil importers of Iranian oil to take steps to reduce or in some instances to stop their import of Iranian oil. That's both something that allows us to broaden the impact in terms of the number of countries that are again taking action to reduce imports from Iran.

But also it allows us to phase in these sanctions in a way that has minimal impact on global energy markets because we don't want to -- we want to take steps to ensure that the -- they’re phased in a way that doesn’t drive up the price of oil, which would again ultimately end up benefiting the Iranians, because as more of their oil is taken off the market, they would of course have revenue from the oil that they do continue to sell. And that's what we’ve been able to do by having this very methodical process over the course of the last nearly six months.

Again, the process we do here is we evaluate what the steps are that these countries are taking to reduce, again, the import of Iranian oil as well as assessing the global supply and demand, in terms of energy markets.

So there are individual discussions with each of these countries who comprise, again, the major importers of Iranian oil. And different countries have taken different steps. Some, like our European friends, have moved towards the full embargo of Iranian oil, which is obviously going to have a -- is already having a dramatic impact on the Iranian economy. Others, again, are taking steps to significantly reduce those imports.

And so, again, we’ve had a continued discussion with each country about the steps that they can take. And what we’ve really done is built a fairly unprecedented coalition of countries that are a part of this effort that is isolating the Iranian government that is having a very significant impact on its principal source of revenue -- or one of its principal sources of revenue in addition to the steps we’ve taken on the financial side, again, to cut Iran off from large chunks of the international financial system.

My colleagues, I don't know if you have anything you want to add in that regard.

SENIOR ADMINISTRATION OFFICIAL: Just for the record, the question was about the countries that have received the exception. The first tranche was the 10 members of the European Union that were purchasers or Iranian crude oil, and they all agreed to go to zero actually by July 1st, Sunday. And that tranche included Japan, as well, so 11 countries there.

The second tranche involved seven economies. It was South Africa, India, Sri Lanka, Turkey, South Korea, Malaysia and Taiwan. And now today with China and Singapore, that brings the number up to 20. And it’s noteworthy that these are all the significant purchasers of Iranian crude oil, and this is a very diverse group of countries. Some of them are close allies of the United States. Some of them are members of the Non-Aligned Movement. This is a diverse group of countries, all of which are now sending an important signal to Iran that it’s got to take negotiations over its nuclear program much more seriously than it’s done to date.

Q Hello, I have a question. How would you evaluate cooperation with Russia -- U.S.-Russian cooperation in the direction of implementation of sanctions against Iran? Thank you.

SENIOR ADMINISTRATION OFFICIAL: Sure. Well, first of all, we have been closely cooperating with Russia through the P5-plus-1 broadly speaking. So Russia of course has been an essential member of the diplomatic effort to get Iran to comply with its international obligation, including recently hosting talks in Moscow. And what we’ve seen is very strong P5-plus-1 unity and putting forward a clear choice to the Iranian government between, again, facing that continued international isolation or coming in line with their obligations.

With respect to sanctions, what the Russians have done is joined us through the U.N. Security Council. U.N. Security Council Resolution 1929 laid the foundation in a multilateral basis for the international community to be putting forward the type of sanctions that we’ve seen on the Iranian government.

Now building on that foundation, the United States and many other like-minded countries have taken additional steps on their own or in concert to increase the pressure on the Iranian government.

And our point has been clear that sanctions are not an end in and of themselves. They're a means of applying pressure to the Iranian government. What we want to see both the United States and Russia, as well as the other members of the P5-plus-1 is, again, a reaffirmation of nonproliferation, an Iran that comes in line with clear obligations spelled out, not just by the NPT, but also by U.N. Security Council resolutions. So we have had strong diplomatic cooperation with the Russians. On the sanctions front, we’ve been able to work with them through the passage of 1929.

And then as we take these additional national measure and multilateral measures to apply pressure on Iran, we continue to coordinate very closely with the Russians through the P5-plus-1 so the choice is very clear to the Iranians, and they have the opportunity to come in line with their obligations and rejoin the community of nations. But they also know that there are consequences for their continued intransigence, and those consequences are the types of sanctions that we’re moving forward with today.

SENIOR ADMINISTRATION OFFICIAL: Thanks, everybody, for joining this call. We’ll obviously be continuing this effort going forward. As my colleague noted, the -- is set today, the full E.U. oil embargo is slated for July 1st, so we’re continuing to implement a very robust sanctions regime even as we look towards continued negotiations as a part of our dual-track strategy that will continue on July 3rd with the experts meeting, the P5-plus-1 meeting with Iran in Istanbul.

So thank you for getting on the call, and I’m sure we’ll continue to be in touch with you on this matter in the days to come.

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3:08 P.M. EDT