The Big Picture

What's Driving Biden's Iran Sanctions Policy

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  • Iran’s exports are marching higher — partly under an apparent easing of US sanctions policy as it seeks to de-escalate tensions, and as Tehran gets better at circumventing four decades of US sanctions.
  • Sanctions enforcement mostly involves Washington exercising its diplomatic muscle to persuade, cajole or warn participants in the export chain to avoid the trade.
  • Right now those efforts appear to be lacking, with the US instead prioritizing Russia sanctions and keeping the oil market well supplied.

Iran’s crude exports, primarily to China, hit around 1.4 million barrels per day in August, up from an average of 1 million b/d in the first quarter of 2023, according to both an Iranian source and data from analytics firm Kpler. The higher flows come as Washington pushes for an informal de-escalation deal, parts of which are already in motion. The deal appears to center on a looser enforcement of oil sanctions and unlocking Iran's frozen funds, in exchange for Tehran curtailing its enrichment of uranium to 60% and facilitating the release of detained US citizens — with a view to wider de-escalation in the region.

There have also been signs of incremental relaxation of the US’ Venezuela measures. Repsol and Eni have seen permissions broadened under an authorization to accept oil cargoes for debt repayment. “We’re seeing a number of new Ofac [Office of Foreign Assets Control] authorizations, and expect to see more soon,” David Voght, managing director at IDP Latin America, told Energy Intelligence. “For the moment, they are limited and controlled, but quite welcome.”

As election campaigning heats up, the administration of US President Joe Biden likely welcomes extra barrels on the market to stem higher oil prices and inflation. Extended voluntary Saudi and Russian production cuts on Wednesday pushed Brent futures to a 10-month high of $90.60. Analysts say these adjustments in tactics are also down to the Biden administration focusing attention on countering Russia’s war against Ukraine and pursuing a thaw in relations with China.

Brian O’Toole, a former US Treasury official now at the Atlantic Council, also notes that cracking down on Iranian oil shipments might not yield tangible policy gains absent a global coalition. US sanctions actions did intensify after talks to revive the 2015 nuclear deal collapsed in September 2022, but the focus was on Tehran's crackdown on domestic protesters and supply of weapons to Russia, alongside some oil measures. Outreach to China is seen as key to reining in Iran's rising oil flows, which came amid concerns about market tightening in the fourth-quarter of 2022.

Past Enforcement Tactics, Consequences

Judging levels of sanctions enforcement is not a straightforward task. Enforcement is less about any headline penalties that may emerge, sometimes years down the road, and more about the diplomatic legwork that often happens behind the scenes. “98% of all enforcement activity is not public and never will be,” a US Treasury official said, denying Washington had eased policy. The official also cited a stream of new sanctions designating Iran’s oil industry and entities in the Mideast Gulf and Asia.

But key too is messaging and diplomatic outreach. When former President Barack Obama introduced financial sanctions in late 2011 targeting Iran’s oil exports and revenue, the priority was getting multilateral backing. Intensive diplomacy created the conditions for sanctions to be upheld. Alternative suppliers were lined up to fill gaps, and waivers were granted to major importers, mainly Asian, for making “significant reductions” in Iranian crude purchases. The pressure was also granular: Tanzania and Tuvalu were pressed to deregister Iranian tankers, for example, and Armenia to stop Iran from channeling payments through its banking system. Ahead of an interim nuclear deal struck in November 2013, Iran’s exports had fallen by more than half, to just below 1 million b/d.

Former President Donald Trump’s push to hammer Iran’s oil flows after he withdrew the US from the nuclear deal in May 2018 was markedly different: It was unilateral, and after initial waivers ended, the focus was on getting Iran’s crude and products exports to zero. Enforcement came through tough messaging and a whole-of-government approach. The administration offered cash rewards to those providing information on Iran’s oil trade. China’s Zhuhai Zhenrong, a top buyer of Iranian crude, was blacklisted. Warnings were issued to port operators, ship owners, management companies, traders and governments that they should “steer clear” of sanctions targets, Trump officials said, or face economic and reputational costs.

Iran’s exports eventually dipped to as low as some 100,000 b/d, from 2.8 million b/d under the nuclear deal. The downside was a spate of tanker attacks in the Gulf in 2019, culminating in missile and drone strikes on Saudi production facilities.

Biden Era: New Priorities

Elliot Abrams, the US special representative for Iran in the Trump administration, said sanctions enforcement under the Biden administration has weakened, compared to Trump’s “maximum pressure” campaign. But the shift reflects new US policy priorities. These include Washington’s 2022 push to revive the nuclear deal — and Russia. Senior Western officials are in the United Arab Emirates this week to press for an export halt of dual-use products to Russia. Russia sanctions also had top billing when Treasury officials visited the UAE, Turkey and Oman in May.

Another issue is that robust sanctions implementation and enforcement would further enflame tensions with China, meaning “there is no appetite for getting serious on what it would take to really bring down Iranian exports,” said Fernando Ferreira, head of Rapidan Energy’s Geopolitical Risk Service. The impact on Iran’s oil trade, most of which heads to China's teapot refineries (and not state majors), may also be very low. These refineries are largely designed for Iranian crude and only certain financial institutions — those not exposed to the US financial system — engage in that trade, said Amir Fadavi, a senior director at K2 Integrity, strategic advisory firm.

Then there’s the security risk, as seen in Trump’s crackdown, and which the Biden administration is specifically looking to ameliorate. “Trying to regain a little tougher enforcement on Iran’s oil exports is probably not going to have any impact whatsoever on Iran’s calculations, other than potentially prompting them to pose threats to international shipping and the maritime situation in the Persian Gulf,” said Ali Vaez of the International Crisis Group. Iranian crude selling at a $10-$12 discount to Brent, as Energy Intelligence understands, and continued restricted volumes also mark sanctions wins.

Strategic Payoff?

A draft International Atomic Energy Agency report circulated on Sept. 4 — ahead of a board of governors meeting beginning Sep. 11 — indicated that Iran had slowed the pace of accumulating highly enriched 60% purity uranium and diluted some highly enriched uranium to 20%. “The bottom line is Iran wouldn't do that without a gift from the Biden administration,” said Ferreira. For the White House, with a keen eye on prices at the pump in the run-up to next year’s election, that points to the informal deal with Iran heading in the right direction, and a discretionary sanctions policy potentially paying off.

Sanctions, Policy and Regulation, Opec/Opec-Plus, Macroeconomics , Elections, Nuclear Policy, Oil Supply, Opec-Plus Supply
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