The Trump administration will end exemptions from sanctions for several countries, including China, India, Japan, South Korea and Turkey, that purchase oil from Iran.

In November 2018, the Trump administration re-imposed sanctions on Iran that were lifted under the 2016 Joint Comprehensive Plan of Action (see prior coverage). At that time, "Significant Reduction Exemptions" were provided to certain jurisdictions that purchased Iranian oil to allow for time to find alternative sources. The exemptions ensured continued access to the U.S. financial system for financial institutions in those jurisdictions. The Trump administration said that the exemptions will expire on May 2, 2019 and will not be extended.

U.S. Secretary of State Michael Pompeo stated:

"Today's announcement builds on the already significant successes of our pressure campaign. We will continue to apply maximum pressure on the Iranian regime until its leaders change their destructive behavior, respect the rights of the Iranian people, and return to the negotiating table."

Commentary / James Treanor

Without the "Significant Reduction Exemptions," financial institutions in affected jurisdictions - including foreign central banks - face the unwelcome prospect of being targeted by U.S. sanctions. In particular, these financial institutions may be subject to prohibitions on the opening and maintenance of correspondent and payable-through accounts with U.S. financial institutions if they continue to engage in transactions with the Central Bank of Iran or other sanctioned Iranian banks - transactions that are virtually unavoidable in the context of Iranian oil purchases.

Whether and to what extent the Trump administration actually imposes such sanctions, which would largely cut off the affected firms from the U.S. financial system, remains to be seen, as does the willingness of China, India, Japan, South Korea and Turkey to bring their Iranian oil imports "to zero," as Secretary Pompeo demanded. If sanctions do ultimately materialize, they would impact some of the world's largest trading nations, virtually ensuring a major impact - for better or worse.

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