By Surya Gunasekara
June 1, 2018 at 5:00 am ET
President Donald Trump knows a bad deal when he sees ones, so it should not come as a surprise when the president fulfilled another campaign promise to abandon the Iran nuclear deal. His sober analysis was spot on; the Iran deal was a “horrible, one-sided deal” that allowed Iran to reach the brink of nuclear breakout and will never bring peace.
Under the 2015 Iran Nuclear Agreement Review Act, Congress now has 60 days to re-impose sanctions through an expedited legislative process. Secretary of State Mike Pompeo has called for the “strongest sanctions in history.” For these sanctions to be impactful, however, the United States must assert itself as an energy powerhouse to ensure our allies and trading partners in the Asian Pacific refrain from propping up the Iranian regime with crude oil buys.
For instance, just days after Trump abandoned the Iran deal, the president of Sri Lanka, Maithripala Sirisena, traveled to Iran on a trade mission. It’s hard to believe South Asia’s oldest democracy would ally itself with the world’s largest state sponsor of terrorism, but Sri Lanka had one strong motivating factor: crude oil. Sri Lanka may seem inconsequential in the scope of the Iran deal, but the small island nation is emblematic of the Asia Pacific region when it comes to the need for oil imports. In fact, the three largest importers of Iranian crude oil are China, India and South Korea.
For the U.S. sanctions to have their desired economic effects on Iran, Asian buyers of Iranian crude oil will have to look elsewhere. During the last round of sanctions, Asian countries increased their oil purchases from Saudi Arabia and Kuwait, according to the U.S. Energy Information Agency. Saudi Arabia applauded Trump’s decision to leave the Iran deal and has pledged to “mitigate the effects of any supply shortages.” While increased oil output should help stabilize prices, this time there is another oil producer Asia can turn to: the United States.
In the two years since the United States lifted its archaic crude oil export ban, shipments of U.S. crude to Asian markets have surged. Asia was once viewed as too far away from U.S. Gulf Coast ports to make the trade economical, but with the emergence of super tankers — some of which can carry 2 million barrels of oil — and high global prices, the Asian markets are now viable.
Despite the logistical barriers, a third of U.S. crude exports in the first half of 2017 went to Asian markets — with India receiving its first-ever shipment of U.S. crude oil last October — according to the U.S. International Trade Commission. In addition, with the opening of the Arctic National Wildlife Refuge as part of last year’s tax reform bill, the U.S. could also increase Alaskan exports to Asia, cutting down on the shipping costs.
But it’s not just oil; the United States is a leader in energy extraction technology and servicing both on and offshore. As the Trump administration seeks to turn the screws on Iran, the U.S. should empower Asian regional allies by promoting energy independence with the support of U.S. companies and technologies. India has substantial offshore gas reserves, but the deepwater oil fields require subsea pumps and compressors, wellhead systems and blowout prevention systems, which are all developed by U.S. companies.
In Sri Lanka, offshore seismic studies are just beginning, but the United States could immediately help the country expand its refining capacity. Its aging state-owned refinery is in desperate need of an overhaul, so much so that during the state visit to Tehran, the Iranians offered to build Sri Lanka a new refinery. This overture underscores the need for the United States to strengthen its energy ties to the Asia Pacific region. No ally should ever have to look to a terrorist-enabling regime to expand its domestic refining capacity.
Leaving the Iran deal will only be successful by putting economic pressure on the regime. The United States is now an energy superpower. Increasing crude exports and supporting our allies with energy extraction will not only support U.S. jobs but will be critical to inflicting political pain on Iran, as well.
Surya Gunasekara is the principal at Section VII Strategies and a member of the U.S. Asia Institute’s Congressional Circle, and he previously served as chief of staff to Congressman Jim Renacci (R-Ohio), tax and trade counsel at the American Petroleum Institute, and as an assistant counsel with the Defense Logistics Agency — Energy.
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