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Sanctions On Iran Provoke Fears About Oil Prices

One of the major concerns of critics of the withdrawal from the JCPOA was that oil prices would skyrocket if Iranian oil was taken off the market due to U.S. sanctions. During the first two years of oil sanctions under President Barack Obama, prices spiked to more than $100 per barrel. By contrast, in the first week following the imposition of sanctions by President Donald Trump, the price declined. Brent crude prices fell more than 20 percent from their four-year peak of $86.74 in early October 2018 to a three-year low of $55.69 on November 13 (Wall Street Journal, November 13 and 14, 2018). In March 2019, it had risen to around $65 (Nasdaq, March 8, 2019), still well below its earlier high. One reason for the moderate changes is that OPEC and Russian crude production has been increasing, more than offsetting losses from Iran.

Iran’s oil exports fell about 8 percent in the first two months following the U.S. withdrawal from the JCPOA, and that was before sanctions on oil kicked in. By March 2019, exports had fallen by more than half, from 2.5 million barrels a day to about one million (The Atlantic, March 17, 2019). Rather than avoid compliance as the Europeans hoped, shipping and oil companies have canceled contracts and refused to trade with Iran. For example:

  • One of the largest deals between a European company and Iran involved the French oil and energy company Total. In 2017, Total signed a multibillion-dollar agreement to develop Iran’s South Pars gas field. The company announced it was abandoning the project unless it received an exemption from U.S. authorities (Reuters, May 16, 2018).
  • Japan’s major oil distributors are expected to suspend crude imports from Iran in October (Japan Times, September 2, 2018).
  • Refiners in India, Iran’s second-largest oil client after China, dramatically cut their monthly crude loadings, and India’s oil ministry told refiners to prepare for a “drastic reduction or zero” imports from Iran starting in November 2018 (Reuters, September 14, 2018).
  • For the first time in six years, South Korea did not import oil from Iran in September 2018 (Reuters, October 14, 2018).
  • China National Petroleum Corp (CNPC) has suspended investment in Iran’s South Pars natural gas project (Reuters, December 12, 2018).
  • Japanese refineries have put a halt on imports of Iranian oil in anticipation of the May 2019 expiration of the temporary waiver on sanctions (Reuters, March 29, 2019).

The administration agreed to let eight countries – Italy, Greece, Taiwan, South Korea, Japan, China, Turkey, and India keep buying Iranian oil after it reimposed sanctions. One analyst called the waivers “a lifeline to Iran.” Another analyst countered, “The U.S. may use waivers to slow-walk implementation, but these will not apply indefinitely” (Reuters, November 2, 2018). Pompeo said the waivers were granted to the eight countries “only because they have demonstrated significant reductions in their crude oil and cooperation on many other fronts.” He said two of the eight were expected to end their imports of Iranian oil “within weeks,” and all must reapply for extended exemptions at the end of six months (New York Times, November 2, 2018).

The White House did not announce the exemptions but did put out a press release saying that “on November 5, 2018, all United States sanctions that were lifted under the disastrous Iran nuclear deal will be fully reimposed” (White House, November 2, 2018).

Russia reportedly agreed to a deal with Iran that would allow the country to circumvent U.S. sanctions to import oil (i24News, October 14, 2018). China was expected to help offset sanctions imposed on Iran’s oil industry; however, CNPC’s decision to stop providing subcontracting engineering work and supplying production equipment means Iran will have difficulty maintaining its oil output (Reuters, December 12, 2018).

Iran complained in February 2019 that European nations have not responded to its offers to sell them crude oil despite having U.S. waivers. “We have called them many times, but they do not return our calls,” said Oil Minister Bijan Zanganeh, apparently referring to Greece and Italy, which were among eight nations granted waivers to import Iranian oil. (AP, February 5, 2019). He also disclosed that Russia had purchased shares of an Indian oil refinery, but New Delhi, despite being exempted by Washington, does not allow the Russians to buy Iranian oil for the refinery. Taiwan is also on the list of exempted countries, but it has stopped buying Iranian oil (Radio Farda, February 7, 2019).

U.S. Special Representative for Iran, Brian Hook, said on February 6, 2019, “Iran’s oil customers should not expect new waivers to U.S. sanctions in May.” He explained, “The November waivers were designed to prevent a spike in oil prices, and it appears that there will be enough oil supply to satisfy demand this year.” He added the U.S. would not offer exemptions for “oil or anything else,” adding that the U.S. aims to “get to zero imports to Iranian crude as quickly as possible” (Radio Farda, February 7, 2019).

The administration fears that waivers will allow the Iranians to wait out the Trump administration. Providing a waiver to China, however, is seen as a bargaining chip in trade negotiations. Ending the waivers risks causing oil prices to rise, though officials believe American and Saudi production could compensate for the loss of Iranian crude (Bloomberg, March 15, 2019).

As of April 2019, Hook said a total of 23 importers that once took Iranian oil had cut imports to zero, including three of eight countries (Italy, Greece, and Taiwan) granted waivers (Reuters, April 3, 2019).

Following through on the earlier warning, the administration announced on April 22, 2019, it won’t renew the waivers due to expire on May 2. “This decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue,” according to a statement issued by the White House. “The U.S., Saudi Arabia and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied,” according to the statement (Bloomberg, April 22, 2019).

By the end of May 2019, it appeared all of the countries that had received waivers were in compliance with the U.S. dictate to cease oil purchases. China, India, Turkey, South Korea and Japan have now ended all direct purchases of Iranian crude. Taiwan, Greece, and Italy were unable to use their waivers due to banking and insurance issues (Wall Street Journal, May 27, 2019). Once U.S. oil sanctions are fully effective, Hook said the Iranian regime will lose $15 billion in revenues, 40% of its budget (Wall Street Journal, May 30, 2019).

Pompeo said Iran attacked four oil tankers at the mouth of the Persian Gulf off the coast of the United Arab Emirates in May 2019 in an effort to push global crude prices higher (Radio Free Europe/Radio Liberty, May 30, 2019). The attacks were believed to be retaliation for ending waivers from sanctions for oil purchasers. 

At the beginning of September 2019, the United States blacklisted the Iranian oil tanker Adrian Darya 1. Previously known as Grace 1, the ship has been seeking a port to unload its cargo since being held for six weeks by Gibraltar on suspicion its cargo was bound for Syria. The ship’s captain was also blacklisted as the United States seeks to prevent Iran from benefitting from the sale of the oil aboard the ship (Times of Israel, September 4, 2019).

New sanctions on oil were announced on September 4, 2019, designating 16 entities in Iran and other countries, 10 individuals and 11 tankers. Those targeted are involved in a network designed to evade U.S. sanctions through a variety of deceitful activities, including trying to pass Iranian oil off as originating in Iraq. The State Department also offered a $15 million reward for information that helps disrupt the network (Washington Post, September 5, 2019).

According to the Treasury Department,  the network sold more than $500 million worth of oil during the spring of 2019, mostly to Syria, benefitting President Bashar al-Assad and Hezbollah.

“We can't make it any more clear that we are committed to this campaign of maximum pressure and we are not looking to grant any exceptions or waivers,” Brian Hook, the State Department coordinator on Iran, told reporters (AFP, September 4, 2019).

In early 2020, the price of oil fell dramatically due to the impact of the coronavirus epidemic on global demand and a fight among oil producers that led Saudi Arabia to increase its output. In early March, for example, Brent crude was $35.87 a barrel, less than half the price at the time U.S. sanctions were imposed. Since 2018, Iranian oil output has been cut in half to less than 2 million barrels per day, exacerbating the economic crisis created by U.S. sanctions (Reuters, March 10, 2020).

According to Dr. Eyal Pinko, a former Israeli naval officer, Iran “realized in the last year of Trump’s term that it must pour cash into its pockets and bring food to its hungry citizens.” It subsequently began to use its 143 tankers to ship oil secretly to China, North Korea, Russia, Syria, Lebanon, and Venezuela.

China, whose main oil supplier is Iran, is helping Iran bypass sanctions and evade detection. The oil sales have allowed Iran “to maintain regime stability and inject foreign money into the state coffers.” Pinko says in return China “transferred technological knowledge and production lines of weapons, aircraft and missiles to Iran.”

On the broader strategic level, Pinko argues that Iran “draws the U.S. attention from the South China Sea, where China conducts a real naval campaign and takes over maritime territories belonging to the region’s countries” (i24 News, August 23, 2021).

In 2021, oil prices rose dramatically but the increases had little to do with Iran sanctions and were more related to OPEC reducing supply. Meanwhile, Iran has partially succeeded in evading U.S. sanctions on oil sales by arranging for secret transfers made at night using ships that anchor outside the territorial limits of the United Arab Emirates. Small boats then smuggle Iranian diesel to waiting vessels. Other shipments are forged to make it look as though originate in Iraq or the UAE (Washington Post, January 3, 2022).

Between the rise in oil prices and its ability to circumvent sanctions, Iran’s oil revenues increased by 40% to about $25 billion in 2021. Iran’s oil minister expected the country’s production would reach the level it had been before the U.S. withdrawal from the nuclear deal in May 2018 and the imposition of unilateral sanctions (Haaretz, February 9, 2022). Iran increased its oil exports to China, its main client, as the Chinese reduced purchases of Russian oil due to the war in Ukraine (Wall Street Journal, April 28, 2022).

By 2023, sanctions had little impact as Iran found ways to circumvent them. China, in particular, ensured a steady stream of revenue. In August, Bloomberg reported that Chinese imports of sanctioned Iranian oil were running at the highest level in at least a decade. Iran was also benefitting from higher oil prices (Bloomberg, August 15, 2023).

 A watchdog group that monitors Tehran’s illicit oil trade, United Against a Nuclear Iran (UANI), reported in March 2024 that illicit Iranian oil sales totaled $90 billion under the Biden administration (Washington Free Beacon, March 4, 2024).

In April 2024, Iranian oil exports reached their highest level in six years, providing a $35 billion-a-year boost to the economy at a time when Western governments were planning new sanctions to punish Iran for its attack on Israel. Nearly all of its exports are to China. 

“The Iranians have mastered the art of sanctions circumvention,” Fernando Ferreira, head of geopolitical risk service at the Rapidan Energy Group, told the Financial Times. “If the Biden administration is really going to have an impact, it has to shift the focus to China” (Financial Times, April 18, 2024).