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US reviewing sanctions waiver on Iranian fuel sales to Afghanistan

State Department is actively reviewing sanctions waiver that allowed the previous Afghan government to purchase Iranian fuel following the Taliban takeover
A man walks through an Iranian fuel production site (AFP/File photo)
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New York

The Biden administration is reviewing a 2018 sanctions waiver which allowed Afghanistan to purchase Iranian fuel, following the takeover of the country by the Taliban, the State Department has said. 

A State Department spokesperson told Middle East Eye that the waiver policy put in place by the Trump administration "remains under active review" following the ousting of the previous government.

Earlier this month, the Reuters news agency reported that Iran had resumed fuel exports to Afghanistan following a request by the country's new leadership. Exports were paused earlier this year due to fighting but have spiked since the armed group seized power.

Heavily reliant on Iranian fuel to meet its energy needs, Kabul imported around 400,000 tonnes of fuel between 2020 and May 2021.

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The Trump administration had granted the waiver to the previous Afghan government and US ally in 2018. 

Alex Zerden, who led the Treasury Department's office at the US embassy in Kabul from 2018-2019, told MEE that at the time the waiver was intended to protect Kabul as Washington pursued its "maximum pressure campaign" against Tehran. 

"There were real concerns about Iran sanctions harming Afghanistan's economy and a waiver to import Iranian fuel was seen as crucial," he said.

The Trump administration imposed sweeping economic sanctions against Iran in 2018 as part of an effort to pressure Tehran to curtail its nuclear programme, ballistic missile tests and support for conflicts in Syria and Yemen.

In response, Iran began downgrading its commitments to the deal and is currently enriching uranium beyond agreed limits, shortening the time it would need to amass fissile material - if it were it to build a nuclear weapon.

Since coming into office, the Biden administration has lifted sanctions on some Iranian energy companies, signalling Washington's willingness to ease economic pressure on Tehran if it changes course.

The resumption of fuel sales underscores how the Afghan withdrawal has upended decades of US policy and left Washington scrambling to adjust to the reality of a new Taliban government.

'Not insignificant'

While Iran has often been at odds with the Taliban, for now it appears to be reaping the benefits of a pragmatic approach to the group. Since the Taliban seized power, cross border trade in petroleum products has boomed to roughly $5m a day, according to the Wall Street Journal.

Fuel sales to Afghanistan are a major source of US dollars for Iran's battered economy which is reeling under the weight of sanctions and faces isolation from the global financial system.

If those flows continue, it could present a potential boon to cash-strapped Tehran whose 2020 draft budget was estimated at $33.7bn.

Howard Shatz, a senior economist at the Rand Corporation, told MEE, "These transactions are not insignificant. If they are cut off, the effect would be felt in Tehran." 

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According to Zerden, the 2018 waiver was intended to allow fuel traders to bypass Iranian sanctions, but not Taliban sanctions.

Since 2002, the Taliban has been a specially designated terrorist group and is subject to a range of sanctions under an executive order enacted after the 9/11 attacks.

But individuals and entities not linked to the Taliban would potentially be subject to Iranian sanctions should the Biden administration revoke the waiver.

"We haven't seen any Afghan individuals or private businesses sanctioned yet for trading oil with Iran," Zerden said.

"While the Taliban are already under sanctions, this could leave open the possibility that private individuals with no direct or indirect links to the Taliban would be subject to new sanctions," he added.

An amendment to repeal a part of the waiver reached the House Foreign Relations Committee last month but was blocked by Democratic Congressman Gregory Meeks, the committee chairman.

MEE reached out to Meek's office but did not receive a response by the time of publication.

MEE also contacted the Treasury Department to ask whether Iran sanctions would be enforced on fuel sales but did not receive a response.

'Mighty steps'

According to Shatz, even if Washington wanted to enforce the sanctions, it could prove difficult. "We don't have a lot of leverage with Iran and Afghanistan," he said.

The fuel sales take place in cash at the Iranian-Afghan border, with some deals facilitated by brokers in third countries. Most of the transactions occur through Afghanistan's informal Halawa banking system.

"Enforcing violations of sanctions would be difficult because this occurs outside formal financial channels," Zerden said.

The Biden administration's review of the sanctions waiver comes as Iran's new hardline Foreign Minister Hossein Amir-Abdollahian has vowed that Tehran will take "mighty steps" to confront US sanctions.

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In recent months, the White House has struggled to respond to Iran's illicit fuel sales to countries such as Syria and Lebanon.

On Thursday, the first fuel lorries carrying Iranian diesel in Lebanon were met with celebratory gunfire and people throwing rice and rose petals into their path as they drove through the country.

State Department spokesperson Ned Price has said the US would be willing to lift sanctions on Tehran if it comes back to negotiations and reaches a deal on returning to the nuclear accord.

"I'm not sure if the administration is interested in continuing the maximum pressure campaign, and that is why the Afghan waiver might stand," Shatz said.

While sanctions cut Iran's exports from 2.5 million barrels of oil a day in 2017 to less than 400,000 a day in 2020, the country has developed ways to sidestep sanctions and continues to sell oil.

According to the US Energy Information Administration, Iran earned $30bn in net oil export revenues in 2019.

Shatz says if the Biden administration decides to end the waiver, one effect would be to cut off third parties involved in the purchase or sale of the fuel from the US financial system.

"It would likely discourage businesspeople in the Gulf from facilitating any transactions," but individuals from countries like China or Russia could step in to fill the void, Shatz said.