U.S. Eyes Tighter Sanctions On Iran’s Oil And Gas Exports

Yves here. I hope readers, particularly those current with the statements of key foreign officials, will opine on the article below. It seems to unduly rely on dated assumptions about which nations are willing to follow US dictates, um, sanctions. Most countries outside the so-called Collective West know that only sanctions imposed by the UN Security Council apply to all UN member states. Yet this article assumes that China and India will fall in with tighter US sanctions on Iran, and that Saudi Arabia will play ball and increase production because it does not like Iran. Given that MbS really really does not like the US now, proven by his making Antony Blinken wait overnight before getting a brief audience, it is an open question as to whether Riyadh is in the mood to do the US a solid these days.

By Dr. Cyril Widdershoven, a long-time observer of the global energy market. Presently he works as a Senior Researcher at Hill Tower Resource Advisors. Next to this, he fills several advisory positions with international think tanks in the Middle East and energy sectors in the Netherlands, the United Kingdom, and the United States. Originally published at OilPrice

  • The Biden Administration reconsiders its previous thaw with Iran, possibly imposing stricter sanctions, especially on its hydrocarbon sectors.
  • OPEC+ holds sufficient spare production capacity to counteract potential market disruptions caused by sanctions on Iran.
  • The political climate in Washington, including bipartisan support, seems inclined towards the implementation of new sanctions against Iran.

As the oil market grapples with the current and potential effects of the Gaza war, a new significant concern has emerged. U.S. sources indicate that the Biden Administration might soon impose stricter sanctions on Iran. Such a move would represent a marked shift from Washington’s recent rapprochement with Tehran.

Over the past few months, an increasing number of commentators in Washington have criticized the Biden Administration’s decision to release $6 billion in frozen Iranian assets as part of a prisoner exchange with the Khamenei regime. While previous calls for action have yielded little response, events like the Hamas actions on October 7, the ongoing conflict between Israel and Hamas, and the widespread belief that Iran and its allies are fuelling instability in the Middle East have reinvigorated those advocating for sanctions on Iran.

Given the evidence suggesting that senior officers of the IRGC back attacks by Iranian proxies in Yemen, Iraq, Syria, and Lebanon against U.S. military personnel and civilians, it’s becoming increasingly difficult to justify releasing funds to Iran. Moreover, the unwavering support shown by Iran’s religious leader Khamenei and President Raisi for Hamas and threats of direct engagement if the conflict extends to Lebanon is compelling Washington to reassess its stance. Analysts expect that new sanctions could be slapped on Iran very soon, focusing on the country’s largely illegal oil and gas exports.

The imposition of renewed or even more stringent sanctions on Iran’s hydrocarbon sectors and exports would have significant repercussions. The current supply-demand balance is tight, and both OPEC and other experts anticipate further demand growth. If all other factors remain constant, this would result in price surges, potentially pushing prices well above the $100-110 per barrel mark.

Re-establishing a strict sanctions regime, which had been eased after Biden’s election, appears more feasible now than ever. A key reason for the lack of widespread panic is OPEC+’s decision to cut several million barrels of daily production. As a result, the global spare production capacity stands at around 5 million barrels, primarily held by countries like Saudi Arabia, Russia, and the UAE. Rolling back the OPEC+ production cuts could benefit importers and stabilize oil prices in the desired range, as preferred by OPEC’s most influential member, Saudi Arabia.

A renewed sanctions framework would significantly burden Iran’s fundamentalist regime by depriving it of its primary revenue source: hydrocarbon sales. Implementing strict sanctions globally would likely pressure Iran to meet other demands, particularly in refraining from intervening in the Israel-Hamas and Hezbollah conflict. Some might argue that placing financial constraints on the Iranian Revolutionary Guards (IRGC) could be a severe setback and shouldn’t be underestimated. Simultaneously, new sanctions might disrupt or even sever financial ties between Iran and its regional proxies, a move that many Arab nations would likely welcome.

Some analyses suggest that a renewed sanctions approach could focus on fully enforcing existing sanctions, particularly those targeting Iran’s primary clients in Asia. Until now, the U.S. has granted waivers for most Iranian exports to China and India, providing Tehran with a crucial financial lifeline. By exerting pressure on India and China, Washington could achieve multiple objectives simultaneously: reducing Iran’s revenue, compelling Asian countries to adhere to U.S. directives, and prompting them to seek alternative supply sources, potentially boosting U.S. hydrocarbon sales.

Arab nations, notably Saudi Arabia and the UAE, might publicly remain neutral on such a U.S. initiative. However, behind closed doors, there would likely be some satisfaction. Weakening Iran—even with restored diplomatic relations—would not be seen negatively, and the potential disruption of funding to Iranian militias in the region would be a welcome development.

Recent developments in Washington indicate that discussions and implementation of new sanctions on Iran are imminent. US senators from both parties are already framing new sanctions regimes, as noted by Republican Senator Joni Ernst. This forthcoming sanctions bill will be co-led by Democratic Senator Richard Blumenthal. The election of Republican Mike Johnson as Speaker of the House further paves the way for more stringent sanctions in the near future. A known critic of the Trump administration, Johnson has been proactive in advocating for a strong stance against Iran.

For Iran, the prospect of new sanctions, primarily if they’re implemented globally and target its primary clientele, couldn’t come at a worse time. The country’s financial health remains fragile despite a growth in Iran’s oil exports to Asia over the past year. As stated by Davoud Manzour, the head of the Iranian Planning and Budget Organization, on October 23, only “approximately 70 percent” of the government’s projected revenues were realized in the first seven months of the current Persian calendar year (March 21-October 23). Contrary to official Iranian claims that oil exports have exceeded 1.8 million barrels per day, Manzour emphasized that actual oil exports have failed to reach the budgetary target of 1.5 million barrels daily. Furthermore, the International Monetary Fund (IMF) estimates that Iran’s foreign currency reserves will reach $21.1 billion in 2023. If new sanctions are implemented, they’ll hit the Iranian economy hard. Without sanctions, the IMF projects reserves of $24.3 billion for 2024.

Given the circumstances, it seems highly probable that Iran will face US sanctions. There’s a strong likelihood that the EU will either back these sanctions or introduce its regime. The mounting evidence of Iran’s involvement in the ongoing crisis grows daily. Political shifts in the US and upcoming EU elections could serve as catalysts for such measures. While markets need to gauge the potential impacts, volatility is expected to rise sharply. Concurrently, sanctions could serve as a leverage point against Israel. In pressing Washington to act against Iran, the Israeli leadership recognizes the implications and potential benefits.

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  1. Pat

    Not an expert, but I think the fact that America is essentially providing Israel the means to wage a genocidal campaign against Muslims in Gaza in order to expand their borders will color those imagined behind close doors discussions in Saudi Arabia and the UAE. Enough that more sanctions on Iran might not be seen so much as weakening Iran as emboldening Israel making them an even bigger threat to the region. (That Biden and Blinken are deeply disliked and rightfully distrusted won’t help.)

    1. Michaelmas

      Folks here may be looking at this through the wrong lens.

      OP: If all other factors remain constant, this would result in price surges, potentially pushing prices well above the $100-110 per barrel mark.

      From the US POV, tighter US sanctions on Iranian oil could therefore produce —

      [1] A win for US oil producers because in 2023 the US is the world’s #1 oil producer (though also, ironically, a win for Russia at #2 place).

      Countries with the Highest Oil Production (barrels per day)
      United States – 11,567,000
      Russia – 10,503,000
      Saudi Arabia – 10,225,000

      [2] A win for the US strategy of reindustrialization as higher energy prices drive those EU manufacturing corporations that can to move their plants to the US.

      [3] A possible win for the US against Tehran on the geopolitical side of things. Though I doubt it myself, for the obvious reasons that people here have pointed, the folks at Foggy Bottom and elsewhere in DC can dream, can’t they? I grant you, high prices at the pumps might be a loser going into the 2024 election.

      1. J

        This is exactly what’s wrong with DC and The State Department, no vision for the future, just a lust for short term ‘wins’ furthering conflicts and sanctions is only good for the people selling oil and weapons and war.

    1. timbers

      Seems spot on. I think I have randomly seen Medhurst elsewhere. And Russia really needs to come up with a plan to forcefully respond to US terrorism. Russia did nothing in response to US destroying Nordstream, so what’s to stop US destroying gas lines to China? With a guaranteed non response from Russia, the US would crazy not to destroy further Russian gas lines at will. Russia is excelling in drones. With such drones available, why are US forces still in Syria? Russia missed her opportunity now that US carriers are swarming the area. And Russia has been much too slow to provide Syria and Iran military equipment to enable them to defend against Israel and US. Although Russia will need to keep Saudi Arabia in the loop lest she get concerned about what arms Russia sells to Iran.

  2. The Rev Kev

    There are an awful amount of assumptions by this author and a lot of wishful thinking as far as sanctions are concerned. But after nearly a half a century, I ask you – what is there left to sanction on Iran? And as Iran is getting more and more integrated into the BRICS as well as the Shanghai Cooperation Organization, there will be nothing that they want from the West anyway. The EU can be ignored in this melodrama as the have reduce their role in the world to be castratos for DC – but with no country wanting to listen to them. And I don’t know why he referenced the Biden Administration’s decision to release $6 billion in frozen Iranian assets as part of a prisoner exchange with Iran. Biden already reneged on that deal as soon as the prisoners were freed which only confirmed for the Iranians that there is nobody to negotiate with in the Biden White House.

    Maybe Biden wants to go all Pirates of the Caribbean and hijack more Iranian oil ships,. Not sure how that would work out as the bulk of that oil goes to China, Asia and I believe the UAE. The US starts hijacking oil tankers and you may well see Chinese warships giving those oil tankers a military escort and basing themselves in the UAE. In the face of such a development, Saudi Arabia and Russia may scale back on oil shipments to bring pressure on the Biden White House. I do not think that the Saudis will try to put the boot into Iran as the whole region was settling down and they were settling their disputes with Iran. Why go back to the bad old days that cost billions monthly when they can concentrate on more serious problems instead? But for people like Dr. Cyril Widdershoven, it is always about sanctions, even though one third of the world at the moment is being sanctioned.

    1. James

      The US has been itching for that war for many years – but there are reasons why the US has not launched it. Two of those reasons are the water desalination plants run in the gulf countries being such soft targets, and fears that Iran will be able to close the Strait of Hormuz.

      ‘Everybody has a plan until they get punched in the face’ as Tyson famously put it.

  3. Paris

    After your introduction, I read the article just to have a good laugh. The author is delusional. Nonetheless, the Biden team is already BFF with Maduro, the Venny dictator lol. But…. if they think they can prop up production really soon, they can’t. The whole PDVSA infrastructure is well deteriorated.

  4. NotThePilot

    I feel weird to be raising a couple questions about this article because the author apparently has a doctorate, experience advising the energy sector internationally, and OilPrice published it. But…

    #1: My radar always goes off when someone fails to distinguish between grades of crude oil, as in:

    … prompting them to seek alternative supply sources, potentially boosting U.S. hydrocarbon sales.

    I’m no hydrocarbon expert, but isn’t most US production today in fracked, sweet, light crude? Works for gasoline, but not for heavier things like industrial stuff & diesel, which is exactly what heavy, sour crude like Iran’s (or Russia’s) tends to get refined into? I think that’s also the whole subtext of Biden instantly kissing and making up with Venezuela once this Gaza war blew up.

    Granted, the author could be thinking of natural gas, but I didn’t think US LNG could really compete with piped gas in Eurasia, excepting the galaxy-brain EU auto-embargo. And everywhere else he emphasizes crude oil (OPEC+, price per barrel, etc.)

    #2: From not only reading, but also personal anecdotes and relationships, I assume the whole Saudi Arabia vs. Iran, or Sunni vs. Shia, as eternal enemies is just (last-gen) Saudi / Emirati propaganda. The US agencies & press also play it up, especially in Iraq, but the US also seems to genuinely believe it’s more of a deep-seated thing than it really is.

    Yes, it’s a fault line so when the tectonic plates in the Islamic world really get moving, there are typically earthquakes and maybe a generational conflict. But IIUC it’s dormant way more often than it’s active. I mean look at the Lebanese Civil War; it’s not like the Sunnis rushed to join the Phalanges just to fight Amal.

    Seems to me that the Saudis in particular played up the anti-Shia stuff as a firewall to keep the revolution in Iran from going full pan-Islamic. Khomeini definitely liked to jab at them, but the Siege of the Grand Mosque was probably what really freaked them out. Despite having kept that bloody mess in Yemen going far too long, it looks like Muhammad bin Salman is canny enough to realize the sectarian stuff is passe (and also to dump whatever McKinsey people he had whispering in his ear).

  5. Polar Socialist

    Iran has a Free Trade Agreement with Eurasian Economic Union and it will be a member of BRICS from January 1st. Iranian banks are opening branches in Russia and vice versa, the two countries are also synchronizing their banking messaging systems (SEPAM of Iran and SPSF of Russia).

    Of course there are still a lot of issues (trade imbalance and currency instability with Russia, for example), but I do think that the horse has already bolted and Iran has enough options with actors that just don’t care about US sanctions anymore.

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