SPECIAL BRIEFING ON NATIONAL DEFENSE AUTHORIZATION ACT

The following excertp is from a U.S. Department of State e-mail:
Implementation of Section 1245 of the 2012 National Defense Authorization Act (NDAA)
Special Briefing Senior State Department Official
Via Teleconference
Washington, DC
March 20, 2012
MODERATOR: Thank you very much. We are delighted to have with us today [Senior State Department Official], hereafter known as Senior State Department Official, to give you some background on some decisions that the Secretary is making with regard to those countries that we consider have implemented Section 1245 of the 2012 National Defense Authorization Act. I know you are all awaiting a statement by the Secretary of State on this issue. We expect it to be out in the next 15 minutes. [Senior State Department Official] will summarize it for you and then go into his background briefing.
Over to you, [Senior State Department Official].

SENIOR STATE DEPARTMENT OFFICIAL: Very good. [Moderator], thank you. Thank you for joining us in this conversation. The statement that you will be getting in a short amount of time will indicate that the Secretary announced today that an initial group of 11 countries has significantly reduced their volume of crude oil purchases from Iran. That group includes Belgium, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain, and the United Kingdom, and it also includes Japan.
The 10 countries from Europe are 10 countries that have been importers of crude oil. This specifically responds to a provision in the legislation that sanctions imposed pursuant to the legislation shall not apply if a country has significantly reduced its volume of crude oil purchases from Iran. And that is the key triggering language in the legislation. As a result of the Secretary’s determination, she has reported to the Congress that these sanctions, pursuant to Section 1245 of the National Defense Authorization Act, will not apply to financial institutions that are based in those countries for a period of 180 days. And that 180 days is renewable based on ongoing reductions.

For the European Union, a critical factor was that on January 23rd, the EU approved a decision to ban immediately all new contracts for the import purchase or transport of Iranian crude oil and petrochemicals, including related financing and insurance, and to phase out all existing Iranian oil contracts by July 1st, and all existing petrochemical contracts by May 1st, and finally, to immediately prohibit investment in the provision of goods and services to Iran’s petrochemical sector.

On Japan, the Secretary had already indicated in her testimony at the end of February how Japan, despite the hardships and the loss of energy capacity after Fukushima, had indeed reduced its imports of Iranian crude oil from Iran in the second half of 2011. This followed a period of three years of successive reductions. And in addition to that, Japan’s industry has aggressively sought out new suppliers as an alternative to Iran.

All of these countries have focused steadfastly, I think, on a common goal, which is to deny export revenues to Iran that can fund its nuclear program. It continues to underscore that these countries are acting in solidarity with a common policy goal, and we see this as a significant step in the implementation of the National Defense Authorization Act, and the progress that we’re achieving in implementing the measures of the act. And I’m glad to answer your questions.

MODERATOR: Thank you. Operator, we’ll go on to questions now. Just to advise participants that we have made oral notifications to the Hill on the Secretary’s intention to do this, but the actual paperwork will go up later today or tomorrow.
Operator, go ahead with the first question, please.

OPERATOR: Thank you so much. Your first question comes from Tolga Tanis of Hurriyet. Your line is open.

QUESTION: Thank you for this. Hi, [Senior State Department Official]. I had a quick question specifically on Turkey. You have not mentioned on Turkey within the countries that – who reduces the crude oil purchase from Iran. What does it mean to Turkey, first of all, I mean, in – after 180 days? And at – is there any favor or request from Turkey from you on this specification? Thank you.

SENIOR STATE DEPARTMENT OFFICIAL: I would say first of all that there are a number of countries with which we have started and continue to have conversations. We will – we look forward to hearing from countries the kinds of actions that they might take to indicate their interest and commitment to significantly reducing their imports of Iranian crude oil.

I would underscore that the first sanctions that apply related to any financial transactions with Central Bank of Iran came into effect on February 29th. Since that was the first day that the legislation took hold, then any case related to actual sanctions would have to be detected and would be built up and, as we have indicated, that we would have consultations with any country before the imposition of sanctions.

On the specific cases that were cited, I would just underscore that they represent a real model, a model on the part of Japan, because under great hardship, the Japanese have understood the commitment to reduce the imports of Iranian crude oil and took those actions. On the part of the European Union, we had 27 states acting in solidarity to take this action to impose a ban on new purchases and contracts and to phase out all existing contracts by July 1st. And for any country that might have an interest in seeking to be considered in a similar category, these models provide a basis for them to consider what kind of action they think they could potentially take where they can demonstrate a similar commitment to denying Iran export markets.

MODERATOR: Thank you. Operator, next question, please.

OPERATOR: This question comes from Matthew Lee. Your line – of AP – your line is open.

QUESTION: Hi, there. I need – wondering if you could tell us exactly what the Japanese commitment is, how much have they reduced their imports, and how much did they do recently? In other words, after the passage of – the signing of this legislation. And please be as specific as possible, because I know there are countries out there that are probably wondering how the Japanese managed to get this exemption.

And then a second thing is just: What happens to countries that have not gotten the exemption? Are there any – are there countries on which – I’m sorry, I don't know the legislation that well, but are there countries that are affected by this now, countries – the other, what 190, 180 countries in the world that did not get exemptions now?
SENIOR STATE DEPARTMENT OFFICIAL: So first of all, regarding Japan. The specifics of the actions that Japan has taken and that they’re seeking to pursue in the future entails specific commercially protected information. I can’t go into what those contractual arrangements that Japan is looking at would entail. What is available publicly is that, over the last six months of 2011, that depending on the data sources that you look at and the seasonal adjustment of the data, that Japan increased – or decreased its imports of Iranian crude oil between 15 and 22 percent, depending on what the data source is. And that is an extraordinary action on the part of Japan and the Japanese people, following the point – the Fukushima and the hardships that they were forced to go through.
In terms of the actual implications of the law for others: I think first, just to clarify, this exception, as I mentioned earlier, applies only to countries that have significantly reduced the volume of crude oil purchases from Iran. There are approximately 23 countries in the world that have been importers of Iranian crude oil, so that is the total limit of the number of countries that would – that can be considered under the exception. If there are countries that believe that they should be considered under it, we are happy to have discussions with them. And again, I would only underscore that these cases with Japan and the 10 European countries, that they serve as a model, as a benchmark that others can look at and determine whether they are able to make commitments to deny Iran export markets for its crude oil.

In terms of the applicability of sanctions, that is a good question, and there has been some confusion about this. There are several provisions in the law that might be helpful to remember.

The first is on – relates to February 29th. At that point, financial transactions with the Central Bank of Iran that are related to non-petroleum products – non-petroleum products – except in the circumstance of a country sending refined petroleum products to Iran, those financial sanctions took effect. And that essentially excludes those financial institutions from access to the U.S. banking system, because on February 29th, that provision only came into law. Then any sanctions case after that has to be analyzed, built up, and be able to be justified in a court of law in order to be able to be pursued. And so that is one of the questions that now has to be addressed, is whether sanctionable activity will be detected by any country that would not be following the provisions specified under that clause of the legislation specifically related to trade in non-petroleum products.
On March 30th, there’s a provision in the legislation that calls for the President to make a determination on whether or not price and supply conditions in the market allow for countries to switch from Iran to other suppliers of Iranian crude oil. And if the President does make that determination, that then triggers or calls into action another set of sanctions that come into effect on June 28th. And those sanctions are against any transactions with the Central Bank of Iran by any financial institution, whether it’s private or public, related to the purchase of petroleum or petroleum products for Iran.

So bringing that back to the specific point of what happens to other countries, in terms of countries that were importers of Iranian crude oil, there are 12 others that fall into that category. For those 12 countries, they – it is – they now have an example that they can look at to determine what kind of actions that they might be willing to consider domestically. In terms of sanctionable activity, we can’t comment on that because the first step has to be to determine and detect whether there is sanctionable activity, and secondly, to then determine if there is a case to be built up around it.

MODERATOR: Good. Thank you. Next question, please?

OPERATOR: This question is from Indira Lakshman from Bloomberg News. Your line is open, ma’am.

QUESTION: Thanks. Thank you for doing this. [Senior State Department Official], can you tell us in the country that we know are the other major importers – I mean, the main importers of Iranian oil, which are all Asian nations, who haven’t been given exemptions other than Japan – do they now have up until June 28th to come into compliance with the significant reduction? Is that the basic deal? And would then the President determine on June 28th who is getting further sanctions and who is not?
SENIOR STATE DEPARTMENT OFFICIAL: The
 --
QUESTION: I mean further exemptions.

SENIOR STATE DEPARTMENT OFFICIAL: Essentially, the way that you present the question is correct. And as always, the case is more complicated with any of the provisions of the sanctions rule. The way the legislation is established is that it has provisions for sanctions that are related to non-petroleum products and sanctions that are related to petroleum products.

QUESTION: Right. No, I’m just talking about the petroleum part, because under the 180-day clause, it makes it sound like that 180 days from December 31st is the June 28th for the petroleum portion. So that’s --

SENIOR STATE DEPARTMENT OFFICIAL: That is correct. The only reason I’m hesitating is because if a country, in addition to having imported petroleum products, may have had other kinds of sanctionable activities, it could actually become liable to sanctions even before that.

The point that I would underscore is that we would hope that any countries that feel that they have the capacity to reduce their imports of Iranian crude oil, that we would be open to the soonest possible discussion with them. There are a number of countries that have begun those discussions with us, and we are very interested to continue to pursue them in great seriousness.

QUESTION: Are you confident that India, China, and South Korea will all be able to reduce them?

SENIOR STATE DEPARTMENT OFFICIAL: I – we look very much forward to hearing what kind of messages those countries are able and willing to bring to us, and to continue to pursue them in a serious and professional conversation.
MODERATOR: Okay, next question. Thank you.

OPERATOR: Arshad Mohammed from Reuters. Your line is open.

QUESTION: Yeah. Three quick things: [Senior State Department Official], can you – or excuse me, Administration official, can you please identify the 12 other countries that continue to import Iranian oil, and therefore, could eventually be subject to sanctions? Question one.

Question two: You yourself noted that the Administration has to make a determination by the end of this month on whether the price and availability of alternative supplies are sufficient to allow countries to significantly reduce and switch to other crude oil suppliers. Why then are you announcing these exemptions today? I don’t understand the timing, particularly since sanctions for crude oil purchases via the Central Bank of Iran couldn’t even be applied until after June 28th. So why the necessity of moving this up to now?
And final question: Should the other 12 countries conclude that they are going to have to come up with what you said was the publicly available reports of the reduction in Japan’s Iranian crude oil purchases of 15 to 22 percent? That would seem like a pretty high bar, but is that what they should expect that they need to do so as to be to secure exemptions?

SENIOR STATE DEPARTMENT OFFICIAL: Arshad on – and the 12 others, I don’t have them immediately available. It’s open source information. I think if you Googled imports of Iranian crude oil, you’d probably get the answer really quickly.
In terms of why we’re doing it now, the law is – makes a very strong statement that the sanctions shall not apply if a country has significantly reduced the volume of crude oil purchases. And if a country is in that situation and has unambiguously taken those actions, as we believe the European Union countries have and has Japan have, we felt that it was important to recognize that, because we are achieving significant success in the implementation of the sanctions policy toward Iran.

There are countries that are coming together and demonstrating that they recognize the need to deny Iran export markets and to the extent to which we can reinforce the solidarity that we have with these countries and demonstrate the success in moving forward, that is a strong reason to be able to acknowledge that and put it forward. It does not in any way preempt any decisions that the President will have to make later on. It’s his determination that will effectively make the choice on whether or not the sanctions related to petroleum and petroleum products will come into effect on June 28th.

And finally, on the case of the other countries, the legislation specifies significantly reduce. It doesn’t define what significantly reduce is. I think it’s important for countries to look at actions that have been taken. Japan has just gone through a tremendous tragedy. As I indicated earlier, if you look at open source data in the last half of 2011, even after that tragedy, depending on the data source, they reduced on seasonally-adjusted terms between 15 and 22 percent. That gives some indication. And again with the European Union, they have gone to zero. So we look forward to hearing from countries what their views are and what they can do.

QUESTION: I’m sorry. You said that gives some indication. That gives some indication of what?

SENIOR STATE DEPARTMENT OFFICIAL: Pardon me?

QUESTION: You said that gives – you referred to 15 to 22 percent reduction in Japan, and you said that gives some indication.

SENIOR STATE DEPARTMENT OFFICIAL: That gives some indication of what a particularly country was able to do in a situation of hardship, and we look forward to countries that are importers of Iranian crude oil to come back to us looking at the Japan example, the European Union example, and to give – indicate to us what they believe that they are able to do.

QUESTION: But if that what Japan was able to do in hardship, presumably it’s a floor, then, for countries that are not in hardship.

MODERATOR: Operator, we only have time for one more, so let’s just take the last one and let him go.

OPERATOR: Gary Gentile from Platts, your line is open.

QUESTION: Thank you. I just want to clarify. This is all dependent on the determination the President makes on March 30th as to whether there is sufficient supply at sufficient price for countries to be able to access an alternative source of crude oil. Is that – is my understanding of that correct? And second of all, is everything on track for that determination to be made by the end of next week?

SENIOR STATE DEPARTMENT OFFICIAL: I didn’t hear the first part of the question. I’m sorry.

QUESTION: I just want to make sure my understanding is correct, that these sanctions kicking in at the end of June are dependent on the President determining that there is in fact sufficient supply out there – alternative supply for countries to be able to take advantage of. That determination comes on March 30th, so I want to understand that – my understanding of that’s correct, that that is, everything’s dependent on that determination.

SENIOR STATE DEPARTMENT OFFICIAL: The President’s determination by March 30th will determine whether or not sanctions related to petroleum and petroleum products come into effect on June 28th. That is correct. The sanctions that are established in the legislation apply not just to petroleum and petroleum products. They also apply to other financial transactions with the Central Bank of Iran for non-petroleum products, and the exception that I read applies for all sanctions in the legislation, both petroleum and petroleum products and to non-petroleum products.

QUESTION: Thank you.

MODERATOR: All right. Thank you all very much for joining us.