U.S. Exempts 11 States from Iran Sanctions; China, India Exposed

The United States exempted Japan and 10 EU nations from financial sanctions because they have significantly cut purchases of Iranian crude oil, but left Iran's top customers China and India exposed to the possibility of such steps.

WASHINGTON (Reuters) - The United States exempted Japan and 10 EU nations from financial sanctions because they have significantly cut purchases of Iranian crude oil, but left Iran's top customers China and India exposed to the possibility of such steps.

The SPQ1 gas platform is seen on the southern edge of Iran's South Pars gas field in the Gulf, off Assalouyeh

The decision announced on Tuesday is a victory for the 11 countries, whose banks have been given a six-month reprieve from the threat of being cut off from the U.S. financial system under new sanctions designed to pressure Iran over its nuclear program.

The list did not, however, include China and India, Iran's top two crude oil importers, nor U.S. allies South Korea and Turkey, which are among the top-10 consumers of Iranian oil.

Japanese Finance Minister Jun Azumi welcomed the decision and said Japan would continue to cut its imports of Iranian oil at a set rate in the future.

"The decision takes account of Japan's steps on Iranian oil, including its future response," he told reporters at a regular briefing.

A U.S. official held up Japan's estimated 15-22 percent cut in oil purchases from Iran in the second half of last year as an example for other nations, saying it did so after the "tragedy" of the earthquake that caused the Fukushima nuclear disaster.

"Japan was a model," Carlos Pascual, State Department Special Envoy and Coordinator for International Energy Affairs, told lawmakers. "If Japan was able to do what it did ... that should be an example to others that they could potentially do more."

Pascual declined to set a benchmark for countries to secure an exemption from the U.S. financial sanctions, noting U.S. law only says they must "significantly reduce" oil imports from Iran and must continue to do so to win future exemptions.

South Korea will hold another round of talks soon with the United States on significantly reducing its imports from Iran, a source at the Korea's economy ministry said on Wednesday.

South Korea, the world's fifth-largest oil importer, increased its imports from Iran in 2011 by 20 percent. It's refiners have also signed deals to import a little more crude from Iran in 2012.

The 10 nations from the European Union, which has already decided to stop importing Iranian oil from July, were Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland and Spain, the State Department said.

"The actions taken by these countries were not easy," U.S. Secretary of State Hillary Clinton said in a statement. "We commend these countries for their actions and urge other nations that import oil from Iran to follow their example."

While China and India and others remain exposed to the possible financial sanctions if they do not significantly cut Iranian imports, U.S. law gives President Barack Obama the ability to waive such steps if this is in the national interest.

JAPANESE CUTS MAY BE KEY

The United States has gradually tightened sanctions due to Iran's failure to answer questions about its nuclear program, which Washington and its allies suspect is a cover to develop nuclear weapons. Iran says it is solely to generate power.

World oil prices have surged in recent weeks on concerns about tensions with Iran - including the possibility that Israel will launch an attack on Iranian nuclear facilities - and on worries sanctions would reduce supplies to an already tight global market.

Crude prices have risen to more than $125 barrel on the supply squeeze but on Tuesday dropped nearly $1.50 to $124.25 in London after Saudi Arabia assured markets that it was ready to increase exports to meet any shortfall from Iran.

Mark Dubowitz, an advocate for tougher sanctions on Iran and the head of the Foundation for Defense of Democracies, said Japan's example was likely to be significant.

"The key number will be what Japan agreed to," he said. "This will be the number that other countries will have to meet or otherwise make the case to the administration why their energy circumstances demand a lower reduction."