Will Trump’s New Sanctions Approach Finally Cut off Iran’s Oil Exports?
Trump’s new sanctions approach may be the strategy to finally turn the Iranian oil spigot off for good.
The Trump administration announced a new round of sanctions measures on March 20 targeting Iranian oil exports. This round targeted eight additional tankers which had carried Iranian crude, but what was new was the targeting of Shandong Shouguang Luqing Petrochemical Company, one of a group of independent “teapot” refineries clustered in Shandong province. These refiners are the main consumers of Iranian oil exports, but have not previously been the focus of U.S. sanctions due to their lack of substantial transactions with U.S. companies or financial entities, which are blocked by the sanctions. President Trump signed an executive order in February which directed the Treasury and State Departments to aim to drive Iran’s oil exports “down to zero.”
Iranian oil exports brought in $54 billion in 2024, roughly unchanged from $53 billion in 2023, according to estimates from the U.S. Energy Information Administration. The volumes, including some condensates, averaged around 1.5 million bpd. The trend had been gradually upward during the Biden presidency. The Biden administration was frequently criticized for this uptrend and what was seen as lax enforcement. Some of this laxity may have reflected tacit understandings between the Biden administration and Iran.
Over time, Iran and China have developed an established set of measures which facilitate their oil trade without much impact from U.S. sanctions. As noted, the two largest vertically integrated major Chinese oil companies, PetroChina and Sinopec, do not purchase Iranian crude due to their global network of business transactions and assets. The independent “teapot” refineries are perfect for sanctions evasion, with no nexus to U.S. oil companies or banks, and the ability to clear transactions through small banks in yuan, which Iran now accepts as payment. Privately-run ports in Shandong have recently begun handling much of this trade, anticipating U.S. sanctions against other terminals. Tankers also have concealed the origin of crude by making ship-to-ship transfers offshore from Southeast Asia.
Part of the reason that the Trump administration has felt comfortable tightening sanctions enforcement at this point is the current state of the physical oil market, with ample supply and OPEC+ holding over five million barrels per day of spare capacity which member states would like to gradually bring back online. That has obviated any bullish market response to the possibility of losing the Iranian export volumes. China also has been seeing an apparent year-on-year contraction in petroleum product demand, which, without the discounted Iranian crude, would have probably led to the closure of some of the independent refineries.
Given the availability of so many workarounds for this trade to continue, there is skepticism in the market that the volumes will actually fall anywhere close to zero. One additional measure might be an aggressive push to target Chinese commercial entities which receive and sell petroleum products downstream from the independent refineries, which probably include the Chinese majors, but this would be hard to prove, and would present very difficult issues given how many Western oil and gas companies co-own development projects and other assets with the Chinese majors.
Another possible approach that could be more effective is to use U.S. naval forces to interdict vessels suspected of carrying Iranian crude at sea. The Trump administration has reportedly been giving serious consideration to the idea of stopping tankers for inspection, using the legal cover of a 2003 agreement known as the Proliferation Security Initiative, which was designed to interdict international transfers of materials related to weapons of mass destruction. The agreement had over 100 signatory states, but it is far from clear that the majority of them would countenance its use in this manner for Iranian oil. Comments from Trump administration officials have suggested that this might not aim to permanently detain the tankers, but rather delay them and then have a chilling effect on the trade in Iranian oil. In the handful of previous instances where the United States has stopped ships carrying Iranian oil cargoes, Iran has retaliated by seizing ships owned or chartered by Western companies. There is still a high degree of uncertainty about how far the Trump administration will be willing to go with these more aggressive enforcement measures.
Greg Priddy is a Senior Fellow at the Center for the National Interest and does consulting work related to political risk for the energy sector and financial clients. Previously, he was director of global oil at Eurasia Group and worked at the U.S. Department of Energy.
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