Why Kenya made an about-turn on Iran oil deal

The fear of severe US sanctions forced the government to cancel an oil deal with Iran.

Although officials interviewed refused to comment on the actual sanctions the United States had threatened to slap on Kenya, the Sunday Nation has learnt that they ranged from being cut off from the American financial system and the freezing of exports and grants to Kenya with far-reaching implications for the economy.

The oil deal could have seen Kenya secure four million metric tonnes of crude oil from the Iranian National Oil Company.

Other sanctions Washington has imposed on Iran include an embargo on dealings with the US and a ban on selling aircraft and repair parts to Iranian aviation companies.

Washington is also using the power and influence it wields to force ‘friendlier’ nations to enforce the sanctions aimed at forcing Iran to reconsider its nuclear programme.

More than 12 countries are already facing the threat of American financial sanctions after the State Department in March released a list of nations that may be subjected to the sanctions for failing to cut off oil imports from Iran.

Four of the countries on America’s list are among the top 100 buyers of Iranian crude. They are China, India, South Korea and South Africa; the first are the largest buyers.

Also targeted by possible financial sanctions are Indonesia, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan and Turkey.

The US has also threatened to place its financial system off limits to countries that buy oil from Iran after it classified Iran’s entire financial sector – including its central bank – as a “primary money laundering concern”.

“Kenya is a member of Financial Action Task Force (FATF) that is well placed to tackle money laundering, and once a country is blacklisted we are required to sever links.

Currently, Iran and North Korea are on that list, and this automatically means that we have to follow suit or face sanctions,” said Mr Habil Olaka, CEO of the Kenya Bankers Association.

Swift, the world’s largest electronic payment system handling daily payments estimated at more than $5.7 trillion, was ordered to cut off Iranian banks blacklisted by the European Union in an attempt to further strangle Iran’s ability to finance a nuclear programme.

“These are serious sanctions and it is better not to transact with the blacklisted country. For instance, Swift was asked to shut down its operations in Iran and the implications of such a move are severe on the financial system,” Mr Olaka said.

By February 2012, Kenya was already on US radar, together with 15 other countries ranked as “high-risk and non-cooperative” jurisdictions by FATF and the latest deal with Iran would have pushed it into the blacklisted category.

Other countries ranked as “high-risk and non-cooperative” jurisdictions include Cuba, Bolivia, Ethiopia, Tanzania, Turkey, Sri Lanka, Syria, Ghana, Myanmar, Nigeria, Indonesia, Thailand, and Pakistan.

Had Washington slapped economic sanctions on Nairobi, Kenya’s exports could have taken a major beating. The cash crops and textile sectors would have been the first casualties.

Available data from the Economic Survey 2012 shows that the total value of exports to the US rose to Sh27 billion last year from Sh24 billion in 2011. On the flipside, the country imported Sh79 billion worth of goods from America.

Kenya’s leading exports to the US are knit apparel, woven apparel, spices, tea, and coffee, edible fruits and macadamia nuts, and miscellaneous foods.

But Kenya was not the only country in the East African region threatened with sanctions last week. Tanzania on Thursday was also fighting to avoid similar sanctions after it emerged that it may have reflagged oil tankers from Iran.

Howard Berman, the ranking member of the US House Committee on Foreign Affairs, accused Tanzania of reflagging at least six and possibly as many as 10 tankers owned by the National Iranian Tanker Company, warning of US sanctions.

The European Union began enforcing an oil embargo on Iran on July 2; it applies to all 27 member states. The US Congress is expected to expand sanctions against Iran this month on account of the country’s nuclear programme.

The European Union started implementing an oil embargo against Iran earlier this week, bringing to a halt crude import to 27 countries in the region. The US Congress is also expected to this month expand sanctions against Iran.