Background Conference Call on Presidential Determination Required Pursuant to Section 1245 of the 2012 National Defense Authorization Act

Via Conference Call

2:25 P.M. EDT

MR. VIETOR:  Hey, everybody, thanks for getting on.  We are doing a call, as the advisory said, to talk about the section of the NDAA that has to do with Iran sanctions.  You should have the determination from us -- and now we're going to do a background call as senior administration officials to walk people through what that means and what it says.

And so I'm going to hand it over to our first administration official.

SENIOR ADMINISTRATION OFFICIAL:  Good afternoon, everybody. Thanks for getting on the call.  I'll just give you a little bit of background and then hand it over to my colleagues here. 

Since the beginning of this administration there's been a concerted effort to ratchet up pressure on the Iranian government in pursuit of our objective of preventing them from acquiring a nuclear weapon, and compelling them to come into compliance with their international obligations.  In pursuit of that goal we've pursued a set of unprecedented sanctions, first through the United Nations Security Council, then through follow-on unilateral actions and actions with likeminded partners.

You will recall that in December of last year the National Defense Authorization Act was passed by both the House and the Senate and signed into law by the President.  The NDAA included a provision related to the sanctioning of the Central Bank of Iran. And I'd note that the Iran sanction provisions targeting the Central Bank of Iran passed the Senate 100 to nothing -- so there was overwhelming bipartisan support for this additional action against Iran and its Central Bank. 

The law also contained a number of deadlines for the executive branch, and we have been working through the implementation of the NDAA since December 31st, according to those deadlines. 

Specifically, the sanctions were split into two pieces.  The first dealt with non-oil transactions between private foreign financial institutions and the Central Bank of Iran.  And those sanctions began to take hold on February 29th.  The second deals with oil-related transactions between any foreign financial institutions and the Central Bank of Iran.  These transactions become sanctionable on June 28th.

However, in order for the second set of sanctions to be activated, the President was required in the law to determine the availability of non-Iranian oil supplies within 90 days of enactment.  And then the President has the ability going forward to continue to make that determination.  So today is the deadline for the first determination by the President as to going forward with those sanctions against oil-related transactions in the Central Bank of Iran.

The President signed the determination today after evaluating all the relevant facts and data, and determined that he would go forward with those sanctions of oil-related transactions. 

I'd also note we've been in a steady and consistent dialogue with all of our international partners on this issue over the course of the last several months as a part of our concerted effort to implement these sanctions in a responsible way that effectively targets the Iranian government while mitigating other effects.  And to that end, we have issued exemptions for a number of countries that have cooperated with us in reducing their purchases and reliance on Iranian crude oil -- notably the exemptions issued by the Secretary of State for the European Union and Japan within the last two weeks. 

And with that, I will turn it over to my colleague to talk a little bit about the process by which the President made this particular decision, and then we'll take your questions.

SENIOR ADMINISTRATION OFFICIAL:  Thank you.  There will be some additional background that will accompany the President's determination that will be coming out to you all shortly.  But just in summary, the President made this determination after close and careful consideration of a variety of factors and analyzing the market.  He looked at a variety of different data, a variety of different factors, including the report that the Energy Information Administration submitted to Congress on February 29th, which was required under the statute, which provided a picture of the current oil markets and, in particular, non-Iranian supply and demand.

The President also looked closely at current global economic conditions; in addition, increased production of oil by a number of countries, including, importantly, here in the United States; and also looked at the level of inventories and spare oil production capacity globally; and finally, the existence of strategic reserves.  And so the decision and the determination that my colleague pointed to was made based on a consideration of all of those factors together.

He also, I would note, in the determination made clear that he will continue to monitor closely developments in the oil market, including these factors that I just discussed -- supply-demand inventory, spare capacity, strategic reserves -- in order to assure that going forward the markets continue -- can continue to accommodate reduction in purchases from Iran.

So that's some context on how this decision was made.  And I think we could now open it up to questions.

Q    Thanks, guys, for doing the call, and thank you for your service.  I know that the law specifies that countries can be exempted if they significantly reduce their dependence on Iranian petroleum.  But we don't know what "significantly reduce" means, so I'm wondering if you could help us understand what do countries have to do to significantly reduce in order to be eligible for such an exemption? 

And also, during the congressional debate over this law the administration was very public about its opinion.  I'm wondering if now you can tell us a little bit about your opinion on the current Johnson-Shelby Iran sanctions bill that's pending before the Senate.  Do you support that bill and do you support senators' rights to offer amendments to that bill?  Thank you.

SENIOR ADMINISTRATION OFFICIAL:  Thanks for the question.  First of all, I'd note that we have already pursued those exceptions for the European Union and Japan, given the strong commitment that they've demonstrated to reduce their purchases of Iranian crude oil, and noting in particular the EU oil embargo that is set to come into force this summer. 

And it's our belief that these sanctions are having a significant impact on the Iranian government and the Iranian economy, and that therefore, they present the strongest pressure we have in place to date to affect Iran's political calculus about the pursuit of a nuclear program, particularly as we move into P5-plus-1 negotiation.

In terms of going forward, we're continuing to consult with other countries about their potential reduction in the purchasing of Iranian crude oil.  In terms of the determinations we make, the purchases of Iranian crude oil for each country are closely examined by experts from a range of government agencies, including the State Department, the Energy Department, and the Treasury Department.  And then we make an assessment based upon the overall trends in terms of purchases of Iranian crude oil, the actions that host governments and the private sector have made in different countries, as well as future commitments by these countries.

So I think we've been very transparent in our dialogue with countries around the world about the steps that they can take to pursue that type of exemption.  Again, we've already issued some for the EU and Japan and are continuing to consult with other countries about the steps that they're taking.  And we look at a broad picture that includes steps that have been taken, future commitments to pursue reduction and, again, the role that each country can play in bringing pressure to bear on the Iranian government.

And frankly, this conversation is focused on the fact that the international community broadly has an interest in Iran coming into compliance of its international obligations and preventing Iran from acquiring a nuclear weapon.  So many of these countries have been our partners in enforcing sanctions in the past and have demonstrated an interest in cooperating with us and taking this additional step going forward. 

And each day, I think, really we see a number of positive indicators from a broad range of countries.  Just today, you saw, for instance, a positive indication from Turkey about their interest in reducing their purchases of Iranian crude oil as well.

And on your second question, we have not made specific determinations with regard to that amendment, so we wouldn't have any comment to offer.

Q    Do you have any opinion at all on the Johnson-Shelby bill?  You’re for it, you’re against it?

SENIOR ADMINISTRATION OFFICIAL:  We’re just not taking a position on the particular bill at this point.

Q    I’m curious if you’ve taken into consideration, or how you predict this would impact global oil prices. 

SENIOR ADMINISTRATION OFFICIAL:  Global oil prices are set by a variety of factors, many of which are outside of the control of U.S. policy.  And as the President has talked about on several occasions, factors that are influencing oil prices right now include growth in countries around the world as well as disruptions in supply in countries across the globe from Sudan to Yemen to Nigeria.  And we are monitoring the global oil markets and all of those developments quite closely. 

I think that when making this determination, we looked closely at the Energy Information Administration’s report, which they put out on February 29th, which provided some insight into the state of the market and, in particular, the state of the market when you look at the supply-and-demand factors outside of Iranian exports.  And what that report found was that there is tightness in the market and that tightness remains, but nonetheless, there also appears to be sufficient supply of non-Iranian oil such that foreign countries can significantly reduce their imports of Iranian oil. 

And that, again, takes into account other factors like increased production that we are seeing in Iraq, in Libya, and again, importantly, in the United States, where we have made notable progress in increasing domestic oil production not only over the last couple of years, but, importantly, if you look out into the future, projected oil production in the United States is on the rise as well.  And that’s obviously an important priority domestically for our economic security and our energy security, but it’s also a factor in global oil markets as well. 

So I think the President has been clear that part of the reason why we need an all-of-the-above energy strategy, part of the reason why he's been talking about all of the measures we are implementing here at home, from production to historic increases in fuel efficiency of our vehicles, is because global oil prices are set in a global market.  They are affected by a variety of different factors, and as a result we need to focus on the steps we can to increase our economy’s security against that. 

But with respect to this specific decision here, I think we -- the President made it by taking into an account a variety of these different factors.

Q    So may I just follow -- sorry -- in a layperson’s terms, prices -- as a result of this, prices may go up in the short term, but over the long term, you think it will even out.

SENIOR ADMINISTRATION OFFICIAL:  No.  No, I don’t think that that would be correct.  I would -- I’m not going to speculate about oil prices and how they move, in part because global oil prices are set in a global market and are affected by a variety of different factors, including the ones that I just touched on. 
This decision today is part of a pretty deliberate and well-understood process of implementing the sanctions regime that went into place at the end of last year.  As my colleague pointed out earlier in the call, that process has a number of specific benchmarks, all of which are well understood. 

And overall, we remain focused, as we have been for some time now, on implementing these sanctions in a way that is responsible and focuses on what is the ultimate goal, which is to compel the Iranians to the table. 

And so I think that -- I’m not going to speculate about particular movements in global oil prices.  I don’t think you’ll ever hear us doing that.  But I don’t think that your -- I think your assessment is off.  I think that the people understand that this is part of a pretty-well-understood implementation of our regime.

SENIOR ADMINISTRATION OFFICIAL:  Jessica, just to reinforce that point, the law passed in December, and since then we’ve made it perfectly clear that we were intent on pursuing sanctions against Iranian petroleum.  That’s why we’ve been going all over the world, talking to countries about the need for them to reduce their reliance on Iranian oil.  So I think this is simply the next phase in a policy that was put in place in December with overwhelming bipartisan support, and that we’ve been very transparent about our intent to pursue.

Q    Hey, guys.  So the U.S. State Department announced last week that 11 of the 23 countries that we believe to import Iranian oil are exempt.  Now, of those other 23, there’s India, China and South Korea.  Where do our discussions stand with them? And was this talked about while the President was in South Korea last week?

SENIOR ADMINISTRATION OFFICIAL:  Again, to be specific, the Secretary of State gave exceptions to the implementation of the sanctions to those 11 countries, the EU and Japan.  However, going forward, we also made clear that we were going to continue our discussions with other countries and that other countries still had the opportunity to take steps in order to gain exception. 

This was a topic of discussion in a number of the President’s meetings.  You referenced, for instance, South Korea. We think we’ve had constructive discussions with the South Koreans about steps that they could take to reduce their reliance on Iranian crude oil.  They’ve indicated an interest in doing so. So we’ll have an ongoing dialogue with them.  In the past, the South Koreans have been strong partners in the implementation of sanctions.  So South Korea, for instance, we expect to continue to make progress with in our discussions.

Similarly today, just to cite another example that I referenced earlier, Turkey indicated that even as they have a significant reliance on Iranian imports --- or imports of Iranian crude oil, they indicated an interest in pursuing reductions.

And so this is an ongoing dialogue with a range of countries.  What we want to do is build the broadest coalition that we can to apply pressure on the Iranian government while also implementing these sanctions in a responsible way that takes into account the need to maintain broad international support and mitigate impacts on the global economy, and that’s exactly what we’ve done and will continue to do. 

So those 11 are not the final list of countries that may gain exceptions, and we’re going to continue to discuss with other countries ways in which they can reduce their reliance on Iranian crude oil and join a growing coalition of nations that are pressuring Iran to the table.

Q    As a follow up, without India and China, how significant are these sanctions then?

SENIOR ADMINISTRATION OFFICIAL:  Extraordinarily significant.  I think you’ve seen, first of all, a tremendous impact on the Iranian economy and the Iranian currency -- far beyond, I think, anything that people anticipated a year or two years ago -- in terms of the impact on economic growth in Iran, the impact on their revenue that the government has access to, and the impact on the Iranian currency, which has suffered greatly because of these sanctions and the specter of additional sanctions.

Europe is one of the overwhelming destinations for Iranian exports of crude oil.  And the EU oil embargo, in that regard, is going to be critically important in ratcheting up the pressure on the Iranian government.  So at the same time that these sanctions come into force June 28th is roughly concurrent to one that the EU oil embargo is going to come into force.  And at that point, we really do believe that Iran will face a degree of pressure that is above and beyond anything that it has ever experienced before with regard to sanctions.

I think India and China are two countries that we continue to have a dialogue with about their ability to reduce reliance on Iranian oil.  I would note that while we continue to pursue reductions, what we also have not seen is, for instance, backfilling by the Chinese, whereby they make up the difference in Iranian oil that has come off the market in other places by increasing their economic relationship with Iran.  And so that cooperation has been -- in terms of maintaining a baseline of pressure -- very important. 

So the impact is great.  It’s increasing, particularly with the EU oil embargo and these sanctions coming into force.  And we’ll continue to talk to the Indians, the Chinese and other countries about tightening that squeeze on the Iranian government.

Q    Hi, thanks for taking my call.  Earlier this week, there was a panel of oil experts testifying before the Senate Energy Committee, and all of them agreed to one extent or another that the Iran sanctions and the concern over the eventual impact they will have were playing a huge role in driving the global price of oil.  A lot of them mentioned, too, that the increase in production by the Saudis would shrink the spare capacity that the country has.  So is the White House going to be flexible as it moves forward, if it does, in fact, see any more dramatic increase in global prices, in either scaling back the sanctions or being more flexible with countries like China and India, where the dialogue is still going on?

SENIOR ADMINISTRATION OFFICIAL:  Sure, I mean, I guess I would say two things in response to that.  The first is that I think that what you’ve seen from the administration to date has been a careful and reasoned strategy to implement these sanctions in a way that focuses them on the intended goal.  And I think that the exceptions that my colleague was just talking about and the process of consultation with international partners is evidence of that.

Second, in making this determination today, the President did make clear that he will continue to closely monitor the situation, he’ll continue to closely monitor the market, in order to determine that the environment is appropriate so that we can continue to accommodate a reduction in purchases from Iran. That’s an authority that the President retains under the statute and that he will continue to exercise going forward.

Q    The EIA’s report on February 29th talked about spare capacity being tight by historical standards.  And I’m just wondering, given that sort of tight cushion, what role you see strategic reserves playing, particularly United States -- the strategic reserves in the U.S. going forward.

SENIOR ADMINISTRATION OFFICIAL:  So as I mentioned at the top of the call, in making this consideration the President did look at a variety of factors including the assessment in that report, including inventory, spare oil production, capacity globally, and the existence of strategic reserves.  As you’ve heard the President say on numerous occasions, he is going to keep all options on the table and our strategic reserves are one of those options that will remain on the table as we go forward.

Obviously, with respect to any specific action, no decisions have been made.  And so we don’t have any comment on anything beyond that other than just to reinforce what the President has said, which is that this is a -- it’s an option that is and will remain on the table.

Q    So it says that there’s going to be significant reduction of oil imported from Iran.  Do you have a number or a percentage that we can gauge?

SENIOR ADMINISTRATION OFFICIAL:  So the way that that determination is made by the Secretary of State is something that my colleague spoke to a little bit earlier, but just to reinforce, that those decisions are made on a case-by-case basis. Obviously we’ve exercised the exceptions for significant reduction exceptions already for the EU 10 and Japan.  And in making those determinations, the administration looks at each circumstance, a variety of data both about trends to date, commitments made, and forward-looking commitments. 

And so that’s the approach by which we do this, and we think that it is an effective approach because as we’ve seen by the exceptions that have already been granted, we are commending and recognizing the steps of partners -- serious and significant steps that partners have already taken and that helps encourage other countries to do the same.

Q    Well, I guess what I’m trying to say is, what is the reduction of oil that the U.S. is going to see imported?  Does that make sense?

SENIOR ADMINISTRATION OFFICIAL:  The United States doesn’t import any Iranian oil, given existing U.S. sanctions.  However, in terms of Iranian oil on the market, clearly when you factor in an embargo in terms of EU purchases of Iranian crude oil together with the steps that Japan has taken -- another key destination for Iranian exports -- a significant amount of Iranian oil will no longer be purchased on the market, and thereby impacting the most significant source of revenue that the Iranian government has. 

So while we can’t put a specific percentage in terms of being predictive about the percentage of Iranian oil that comes off the market, when you factor in how much they sell to Europe, how much they sell to Japan, how much they sell to other countries who have indicated that they’re going to reduce imports, we know for certain that that’s going to have a huge impact on their revenues.  And, frankly, when you look at what has happened to their currency and their economy in recently months, clearly markets are beginning to make that determination themselves as well.

Q    Hey, thanks for doing the call.  I appreciate it.  Two questions.  You mentioned the factors that went into the President’s decision.  Can you be specific about what degree, if any, current American gas prices were a factor?  And also you’ve put a lot of emphasis on steps countries have taken and the countries that have received exemptions, and you’re hopeful that other countries will continue to take steps.  Can you just be clear, though, if it comes down to it in June, is the President fully prepared to levy sanctions on allies like South Korea?

SENIOR ADMINISTRATION OFFICIAL:  I’ll take that second question first.  We are fully prepared to go forward with these sanctions, again, which -- sanction transactions with the Central Bank related to Iranian petroleum.  So this determination today I think makes clear that it’s the next step forward in the implementation of those sanctions and it was a step that was necessary for those sanctions to come into force at the end of June. 

I think our allies and partners all understand that.  We have been very transparent with them in our discussions about the fact that we are committed to moving forward with these.  Like I said, this is something that passed with overwhelming bipartisan support -- 100-to-nothing vote in the Senate -- and we’ve been very vocal about it ever since.  But we’re -- our preference is to work with countries so that they take steps to reduce their imports, thereby getting the type of exception that the European Union and Japan were granted by the Secretary of State. 

So that’s what we’re going to continue to pursue between now and July, because what would be the best outcome here is to see the broadest number of countries acting against the Iranian government, sending both a clear message to Iran that they should abandon the pursuit of nuclear weapons while also implementing the sanctions in a responsible way that mitigates adverse impacts to either the international coalition or the global economy.

I don't know if my colleague wants to take the first one.

SENIOR ADMINISTRATION OFFICIAL:  Sure.  I guess I don’t want to sound like we’re giving you the same answer to every question, but in this particular case I think it goes back to the same answer that we’ve given, because at the end of the day, the price of gas here in the United States is set by oil prices, and oil prices are set on the global market. 

Obviously the President is very focused on the impact that high gas prices are having on American families, and he’s out there talking about that all the time and talking about measures that we are focused on as part of the all-of-the-above strategy. If you look at the determination that was made today, again the focus was on oil and whether there is sufficient supply to allow for a significant reduction.  And the factors that influence that decision are the factors that we laid out.

MR. VIETOR:  Thanks, everybody, for getting on.  If you have any follow-ups, please shoot me an email.  A reminder, that was background as senior administration officials.

Thanks again.

END 
2:57 P.M. EDT