U.S. Sanctions on Iranian Oil Likely to Remain Unchanged

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A year or two ago, it looked likely that the U.S. would drop its sanctions on Iran as the two powers expected to agree on a new nuclear deal. However, neither side has been able to agree on the terms of a potential deal, which has left them at a stalemate. While Iran has been steadily increasing its oil production, it is unlikely that it will relive its former oil dominance with U.S. sanctions in place. However, unless it comes to a compromise on nuclear proliferation, little is expected to change in the near future. 

Sanctions Background 

The U.S. introduced sanctions on Iranian oil and gas in 2018 after then-President Trump withdrew from the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. Under the JCPOA, launched in 2015, Iran limited its nuclear activities and agreed to additional international inspections and monitoring in return for relief from U.S. economic sanctions. The Trump administration sought to achieve an expanded nuclear agreement with Iran, which never came to fruition. 

The Biden administration has been in negotiations with Iran to develop a new nuclear agreement in return for easing economic and energy sanctions once again. Following months of successful conversations, the U.S. was hopeful that a new agreement might be reached in 2022, which was particularly important at a time when the world was facing energy shortages due to the sanctions on Russian oil and gas. Iran was beginning to increase its oil production; with the expectation it would soon be exporting larger quantities of its crude.  

Reports from September 2022 suggested that a new nuclear deal was imminent, following optimistic comments from Iranian negotiators. However, talks came to a halt again after the two sides failed to compromise on certain aspects of the agreement. 

Iran’s Reinvigorated Oil Industry 

Despite the ongoing sanctions on Iranian oil and gas, the Middle Eastern power has been increasing its oil production in recent years, as well as finding ways to boost its exports. Iran’s crude exports rose by around 50% in 2023 to a five-year-high of approximately 1.29 million bpd. Most of this oil went to China. The exports helped to stabilize oil prices during a time of geopolitical instability in the Middle East. 

Iran’s crude production is thought to have increased to around 3.17 million bpd, the highest level since before U.S. sanctions came into place. Iran is circumventing sanctions by sending oil to China in tankers said to be originating from Malaysia or other Middle Eastern countries. The “dark fleets” of older tankers can turn off their transponders when loading at Iranian ports to avoid detection. Other tactics include faking locations and carrying out ship-to-ship (STS) operations at locations outside of authorized transfer zones. To date, the U.S. has been largely overlooking Iran’s illegal actions in the hope that it will eventually come to a new nuclear agreement. 

The Current Situation 

With no progress on nuclear cooperation, the U.S. is calling on Iran to dilute any uranium enriched up to 60% purity – close to the 90% weapons-grade level. The International Atomic Energy Agency (IAEA) confirmed that Iran theoretically had enough material, if enriched further, to fuel two nuclear weapons. The U.S. also criticized moves by Iran to prevent IAEA inspections last year. 

The U.S. stated at an IAEA meeting that “Iran should downblend all, not just some, of its 60% stockpile, and stop all production of uranium enriched to 60% entirely.” The statement went on to say, “We continue to have serious concerns related to the stockpile of highly enriched uranium that Iran continues to maintain.” It added, “No other country today is producing uranium enriched to 60% for the purpose Iran claims and Iran’s actions are counter to the behavior of all other non-nuclear weapons states party to the NPT (Non-Proliferation Treaty).”

Iranian officials recently boasted that the country was ever closer to having a nuclear bomb. While the U.S. could tighten its sanctions on Iranian oil further, the Biden administration has, so far, used diplomacy to advance its relations with Iran. Fernando Ferreira, the director of geopolitical risk service at Rapidan Energy Group, explained, “There’s a willingness in Washington to resume indirect nuclear talks with Iran in the coming weeks to get the so-called informal nuclear understanding back on track to reduce the risk of a nuclear crisis this year.” 

A spokesperson from the State Department stated that although there is no plan for increasing sanctions, “we are constantly evaluating our approach to Iran and finding additional ways to add pressure.” The spokesperson added, “As the president and the secretary have made clear, the United States will ensure one way or another that Iran will never obtain a nuclear weapon” and “We continue to use a variety of tools in pursuit of that goal, and all options remain on the table.” So long as the IAEA deems Iran’s nuclear action as presenting a risk to international security, the international community – particularly the EU and U.S. – will continue putting pressure on Iran to alter its behavior. However, there is no suggestion that U.S. sanctions on Iran will be eased or tightened in the near future.

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Felicity Bradstock is a freelance writer specializing in Energy and Industry. She has a Master’s in International Development from the University of Birmingham, UK, and is now based in Mexico City.

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