The Obama administration on Tuesday exempted 10 European Union countries and Japan from U.S. economic sanctions because they have significantly reduced their purchases of petroleum from Iran.
Secretary of State Hillary Rodham Clinton granted waivers to Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain and Japan, meaning that banks and other financial institutions based there will not be hit with penalties under U.S. law for a renewable period of 180 days.
President Barack Obama has until March 30 to determine whether oil prices and supplies are sufficient to levy sanctions later this year on countries that still buy oil from Iran. Pending that decision, another 12 nations _ including India, China and South Korea _ that are deemed to be major importers of Iranian oil have until June 28 to take similar steps or face sanctions. Administration officials believe granting some exemptions before officially authorizing the sanctions could motivate other countries that buy oil from Iran to reduce their purchases.
The sanctions target foreign financial institutions that do business with Iran's central bank by barring them from opening or maintaining correspondent operations in the United States. It would apply to foreign central banks only for transactions that involve the sale or purchase of petroleum or petroleum products.
The petroleum penalties only apply if the president determines there is a sufficient alternative supply and if the country with jurisdiction over the financial institution has not significantly reduced its purchases of Iranian oil. It also allows the president to waive the penalties based on national security.
In a statement, Clinton lauded the countries granted exemptions, noting that the actions they had taken to reduce their imports from Iran "were not easy."
"They had to rethink their energy needs at a critical time for the world economy and quickly begin to find alternatives to Iranian oil, which many had been reliant on for their energy needs," she said. "We commend these countries for their actions and urge other nations that import oil from Iran to follow their example."
Clinton singled out Japan for praise, noting that it had acted despite severe energy constraints brought about by last year's earthquake and tsunami. Japan has reduced its imports by between 15 percent and 22 percent by finding other suppliers and focusing on alternative energy sources, according to U.S. officials.
There have been concerns that the squeeze on Iranian customers could send oil prices sharply higher as countries reduced Iranian exports and made up for it by buying from other suppliers. However, oil producers like Saudi Arabia have said they are willing to help offset the difference and U.S. officials have said the restoration of Libya's crude output to levels produced during the regime of Col. Moammar Gadhafi will also help. Many European countries imported large amounts of oil from Libya, which essentially dried up as a source during the revolt in that country.
Oil prices dropped Tuesday after the exemptions were announced. Traders noted that the exemptions mean some countries that import Iranian oil won't have to cut off all of it.
Some had feared that if many countries had been required to cut off all their imported Iranian oil, it could have created a run on supplies and caused prices to jump.
"It'll reduce the squeeze," said Peter Donovan, an oil broker at Vantage Trading.
Concerns about tightened oil markets have boosted benchmark crude prices 7 percent this year. Brent crude, which prices foreign oil imported by U.S. refineries, is up 16 percent.
A prolonged dispute with Iran could eventually lead to supply shortages in parts of the world, driving both oil and gas prices higher.
The European nations were already subject to European Union rules requiring them to phase out their imports. Those rules were put in place after the passage of the U.S. sanctions legislation that is designed to further isolate Iran and compel it to comply with U.N. demands to come clean about its nuclear program. The U.S. and its allies accuse Iran of using the program to develop atomic weapons while Iran insists it is to produce nuclear energy.
"The United States is leading an unprecedented international coalition of partners that has brought to bear significant pressure on the Iranian regime to change its course," Clinton said. "Diplomacy coupled with strong pressure can achieve the long-term solutions we seek and we will continue to work with our international partners to increase the pressure on Iran to meet its international obligations."
Sen. Bob Menendez, D-N.J., who co-authored the sanctions legislation designed to thwart Iran's suspected nuclear weapons program with Republican Sen. Mark Kirk of Illinois, said in a statement that he supported the secretary's decision.
"The sanctions are working _ many countries and companies have stepped up in recognition of the real threat that Iran poses to its neighbors and the global community and are terminating business relations with Iran," he said. "For the first time we are seeing a real impact on the Iranian economy."
"I think our message to Iran is clear and time will tell what they value more, their nuclear program or the political and economic stability of their state," Menendez said.
Associated Press writer Julie Pace in Washington and Energy Writer Chris Kahn in New York contributed to this report.