The looming revival of international sanctions on Iran is unlikely to curtail Tehran’s vital oil exports but could benefit Chinese refiners, offering them access to a larger share of discounted Iranian crude. Britain, France, and Germany launched a 30-day process on August 28 that will trigger the reimposition of U.N. sanctions on Iran, accusing Tehran of failing to abide by a 2015 deal with world powers aimed at preventing it from developing a nuclear weapon. Iranian and European diplomats met on Tuesday in New York for last-ditch talks to prevent the re-imposition of sanctions, though chances of averting a so-called “snapback” appear slim.
The punitive measures, which are set to kick in at the end of the month, include an arms embargo, restrictions on ballistic missile testing and technology, asset freezes, travel bans and a ban on producing nuclear-related technology. The move will also offer the European Union and Britain legal basis to reimpose restrictions on Iran’s banking, shipping and energy industries. The snapback could effectively spell the death of the 2015 nuclear deal, which was previously dealt a heavy blow when U.S. President Donald Trump ditched it in 2018, leading to the reinstatement of strict American sanctions on Iran. China and Russia have indicated they will not support the sanctions snapback.
WHACK-A-MOLE
Western sanctions on Iran have since 2010 targeted Iran’s oil industry to pressure Tehran over its nuclear programme. The restrictions led to a decline in production, while crude exports dropped from around 2.2 million barrels per day in 2011 to less than 1 million bpd in 2014, according to data from the Federal Reserve Bank of St. Louis
Under the 2015 deal, most of those sanctions were lifted, leading to a recovery in oil exports, which reached 1.85 million bpd in 2017. But following the withdrawal of the United States from the deal and the re-introduction of sanctions, Iranian exports quickly collapsed again to an all-time low of 444,000 bpd in 2020. Europe stopped buying Iranian crude in 2019.
The impact of the U.S. restrictions has nevertheless progressively eroded as Iran, traders and buyers, particularly in China, developed a complex and opaque network to bypass the sanctions. The system includes a web of middlemen and shell companies, a growing fleet of aging, often uninsured tankers, ship-to-ship oil transfers in mid-ocean, and switching off vessels’ tracking systems to make them harder to monitor.
The U.S. government has vastly expanded the number of sanctions in recent years to target thousands of individuals, tankers, traders and Chinese refiners and ports in an attempt to limit Iranian exports. But these whack-a-mole efforts have had little and often short-lived impact on oil flows.
LEVERAGE
Since the 2020 lows, Iranian crude exports have gradually recovered, reaching 1.5 million bpd in 2024, of which nearly four-fifths were delivered to China, according to data from analytics firm Kpler. Exports have inched higher to 1.6 million bpd so far this year.
The recovery in oil exports has offered Tehran vital income in recent years, even if its crude is believed to be sold at a discount to international prices. The oil and petrochemicals industry accounted for around a quarter of Iran’s GDP in 2024.
The sanctions snapback will add a new layer of complications for dealing with Iran, further muddying the water for anyone attempting to bypass them. As recent history has shown, though, those involved in sanction-evading will most likely figure out new ways to bypass any fresh hurdles.
They could also put off some Asian buyers but are unlikely to deter China from continuing its oil purchases. In fact, Chinese refiners could benefit by picking up any unwanted Iranian barrels, potentially offering them further leverage to purchase Iranian oil at even larger discounts.
EROSION
Beijing, which opposes sanctions on Iran, has since 2022 stopped reporting official data on Iranian crude imports, probably to avoid Western scrutiny. China has in recent weeks displayed its lack of regard for Western and U.S. sanctions by importing several cargoes of liquefied natural gas from the heavily-sanctioned Russian Arctic LNG 2 facility in west Siberia.
It is therefore unlikely to scale back purchases from Iran in the face of new sanctions. The erosion of the effectiveness of Western sanctions on Iran, as well as on Russia, is becoming a major feature in today’s international oil and gas markets, creating a two-tiered system of compliant and non-compliant trading. The collapse of the 2015 deal and the return of sanctions is therefore unlikely to have significant impact on Iran’s vital oil exports, which will move further into the shadows of international trade.
Want to receive my column in your inbox every Monday and Thursday, along with additional energy insights and links to trending stories? Sign up for my Power Up newsletter here. Enjoying this column? Check out Reuters Open Interest (ROI),your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X.
(Ron Bousso; Editing by Nia Williams)