Tokyo is still trying to prevent being caught in the geopolitical cross-fire between Washington and Tehran. On Friday, Japan’s Minister of Economy, Trade, and Industry (METI) Hiroshige Seko said that his country remains committed to avoiding any harmful impact from U.S. sanctions on Iran, as it sees the OPEC member important for the country's energy supply security.

"Japan's relationship with Iran, as one of the world's leading oil producing countries, is important as the country relies on almost all of its petroleum [needs] on imports," Seko’s said at a press conference in Tokyo and reported by S&P Global Platts. Seko also refused to disclose the nature of Japan’s talks with the U.S. over Iranian sanctions, but said: "we intend to have close discussions with the US side in order to avoid having a harmful effect from the US measures on Japan's stable energy supply and its corporate activity."

Japan, for its part, was one of eight countries that received a 180-day sanction waiver in November allowing it to continue to buy Iranian oil in spite of U.S. sanctions leveled against Iran’s energy sector. Other countries that received temporary exemptions include Iran’s biggest oil clients: China, India, South Korea, Taiwan, Italy, Greece, and Turkey. The waivers expire on May 2. As a result, Japanese refineries put a halt on Iranian oil imports after buying 15.3 million barrels between January and May, according to Refinitiv Eikon data. Japanese refiners halted imports early to ensure enough time for all cargoes already loaded to arrive in Japan and for payments to be completed.

To waiver or not to waiver

Japan isn’t the only country still waiting to see if President Trump will extend waivers or not. Turkey for its part, which has seen its relations with the U.S. over the past several months diminish, believes that it will be granted a waiver extension. Turkish presidential spokesman Ibrahim Kalin said on Tuesday that Turkey did not support U.S. sanctions policy on Iran and did not think it would yield the desired result. He added that “we made it clear that only we’d like to continue buying oil from Iran but also Iran is a neighboring country ... People should not expect Turkey to turn its back on Iran just like that.”

Other countries also hope to receive waiver extensions to buy Iranian oil. Yet the question of the day is what will Trump do? It’s a tough decision that got him in hot water last year with key ally Saudi Arabia. Riyadh had been towing the Trump line via Twitter last fall to pump more oil to reign in higher oil prices. However, Trump didn’t consult with his Saudi allies before granting the Iranian oil waivers which caught the Saudis off-guard, resulting in an uptick in global oil supply and downward pressure on prices, costing the Saudis and other major producers lost revenue. Since that time, Saudi Arabia has largely been immune to Trump’s tweets calling for the Kingdom and OPEC to pump more oil to reduce oil prices which are at five-month highs. Related: Could This Be The Next High Profile Permian Takeover?

The Trump administration has indicated that it wants to drive Iranian oil exports to zero, an unlikely scenario, to bring the country to its knees economically, putting Trump in a conundrum of whether to grant waivers or not. “I think we’ve been clear about our objective of getting Iran to zero just as quickly as we possibly can, and we will continue to do that,” Pompeo said recently during a Senate Foreign Relations Committee hearing.

If Trump grants waivers, it will help keep more Iranian barrels on the market and help keep prices from ticking upward even more, possibly helping avoid hitting the $80s per barrel price point. Yet, if Trump doesn't renew the waivers, he will be collectively shooting himself in the foot over his efforts to reign in higher oil prices - all coming just as the 2020 presidential election cycle kicks in with voters already anxious over higher gasoline prices.

The president could also extend waivers for five of the eight countries that that took advantage of the exemptions to import Iranian crude over the last six months. Risk consultancy Eurasia Group said this week under this scenario Iranian oil exports would drip from a current 1.2 million barrels per day to around 900,000 barrels per day. Good luck with your decision Mr. President, you are going to need it.

By Tim Daiss for Oilprice.com

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