U.S. expected to extend waivers on Iran sanctions to India, China

By Timothy Gardner

WASHINGTON (Reuters) - U.S. Secretary of State John Kerry is likely to renew waivers on Iran oil sanctions for India, China and several other countries as soon as Wednesday, in exchange for their reducing purchases of crude from the Islamic Republic, two government sources said.

The 180-day exceptions to the oil sanctions would be the third round since President Barack Obama signed the bill in late 2011.

The Obama administration issued waivers on the sanctions to Japan and 10 European Union countries in March.

The oil sanctions are one of the main tools Washington has for its strategy of trying to choke off funding to Tehran's nuclear program. Countries in the West suspect its purpose is to seek the capability to make nuclear weapons. Iran says the program is for generating power and medical devices.

U.S. and EU sanctions last year helped to cut Iran's oil exports in half, depriving the government of revenues worth billions of dollars, helping to devalue the Iranian rial, the country's currency, and driving up inflation.

Critics of the sanctions say that more diplomatic efforts are necessary to avoid pushing Iran's leaders to continue funding the nuclear program.

India has led reductions in Iranian oil purchases, cutting imports by nearly a fifth since December. China's reductions have been more modest. China's cuts could end up being about 5 percent to 10 percent for all of this year, according to trade officials familiar with China's state refiner.

The State Department delayed granting China an exception in June last year for a few weeks, but that is not expected this round.

The government sources, who spoke on condition of anonymity, said all of the countries, including China, India, South Korea Turkey and Singapore are expected to get exceptions on Wednesday.

At a hearing on Tuesday Robert Menendez, the chair of the Senate Foreign Relations Committee, pushed Wendy Sherman, undersecretary for political affairs at the State Department, to say which countries would get an exception this week.

Sherman would not be drawn on the prospects of waivers for individual countries, saying Kerry was still reviewing final documents.

"I can assure you that every country that gets an exception tomorrow, they will have made a significant reduction, because that is what is required by law," she said.

While Menendez and other sanctions backers in Congress have pushed for even stronger oil sanctions on Tehran, Sherman said Iranian oil has to be withdrawn from the market in phases that do not spike global oil prices or risk hurting the economies of oil consuming countries.

Obama will meet with China's President Xi Jinping later this week in California, and is likely to talk about ways to help China quickly move away from oil "so that they can further reduce their dependence on Iranian oil," Sherman said.

Mark Dubowitz, the director of Foundation for Defense of Democracies, a proponent of stronger sanctions on Iran, said he expected China to get a waiver. But the modest cuts by China could push Congress to intensify pressure in coming weeks and months to make sure Iran's exports keep falling, he added.

Asian consuming countries have mainly turned to Iraq, Libya and Central and South American exporters as the sanctions have forced down Iran's oil sales.

(Reporting by Timothy Gardner, additional reporting by Anna Yukhananov and Arshad Mohammed; editing by Gunna Dickson)