Biden to Face Oil Challenges with Iran Without Antagonizing China

A gas flare on an oil production platform is seen alongside an Iranian flag in the Gulf July 25, 2005. Reuters
A gas flare on an oil production platform is seen alongside an Iranian flag in the Gulf July 25, 2005. Reuters

Biden to Face Oil Challenges with Iran Without Antagonizing China

A gas flare on an oil production platform is seen alongside an Iranian flag in the Gulf July 25, 2005. Reuters
A gas flare on an oil production platform is seen alongside an Iranian flag in the Gulf July 25, 2005. Reuters

In the wake of Iran's April 13 attack on Israel, experts are divided on whether the US will tighten oil-related sanctions on Tehran, with some expecting swift action to expand sanctions and others expecting lax enforcement of existing sanctions.

On Monday, the US House of Representatives overwhelmingly passed legislation aimed at countering China’s purchase of Iranian crude oil as part of a package of bills being brought to the floor in response to Iran’s attack on Israel.

The legislation was approved by a 383-11 vote, surpassing the requisite number needed to overcome a presidential veto. The legislation moves to the Senate where it faces an uncertain fate, according to Bloomberg.

The bill would expand secondary sanctions against Iran to cover all transactions between Chinese financial institutions and sanctioned Iranian banks used to purchase petroleum and petroleum products.

About 80% of Iran’s roughly 1.5 million barrels a day of oil exports are sent to independent refineries in China known as “teapots,” according to a summary of the Iran-China Energy Sanctions Act of 2023.

The bill, introduced by New York Republican Representative Mike Lawler, clarifies that any transaction by a Chinese financial institution for the purchase of oil from Iran qualifies as a “significant financial transaction” for sanctions purposes.

In a statement, Lawler said, “For years, Iran have funded Hamas, Hezbollah, the Houthis, and other terrorist organizations. They backed Hamas' barbaric October 7 attack against Israel.”

He added that all of this is made possible by the money Iran receives from its illicit oil trade - which has amounted to over $88 billion since Biden took office.

“The Iran-China Energy Sanctions Act, along with the SHIP Act we passed last November and which is finally coming up in the Senate Foreign Relations Committee tomorrow (Tuesday), will kneecap Iran's ability to export murder and instability across the region,” Lawler said.

“Enough is enough. We must hold Iran and its backers accountable - especially China, the number one purchaser of Iranian petroleum. These two bills will do exactly that and I urge the Senate to pass them both as soon as possible.”

David Goldwyn, chairman of the S&P Atlantic Council Global Energy Center's Energy Advisory Group, said on Tuesday, “I expect the [US Department of Treasury] to quickly ramp up and expand sanctions on Iran's oil trade both as a direct response to Iran's drone and missile attack on Israel, and as a means to forestall a more escalatory response by Israel.”

The US may crack down on participation of US and European insurance clubs in the Iran-China oil trade, Goldwyn said. “China has been a free rider on US diplomatic efforts to contain tensions in the Middle East and has benefited from flouting US sanctions on Iran, Russia and Venezuela,” he said.

Additional Sanctions

Earlier in the day, US Treasury Secretary Janet L. Yellen said additional sanctions on Iran would be forthcoming in retaliation for its attack against Israel over the weekend.

Market Impact

But like the Russia price cap policy, new measures against Iran will likely reduce Iran's income more than it will reduce oil flows, Goldwyn said. “The impact on prices should therefore be marginal,” he said.

Rachel Ziemba, senior advisor at political risk consultancy Horizon Engage, said there could be some additional sanctions enforcement with a focus on targets linked to the Revolutionary Guard Corps and regional proxies. “But I don't think it will be material to the oil markets,” she added.

In an April 15 note, Rapidan Energy Group said that lawmakers may be using the votes to pressure the Biden administration to enforce oil sanctions more aggressively. “However, these bills largely restate existing authorities and, as such, are mostly political messaging to signal support for Israel,” Rapidan said.

To avoid US sanctions, China already channels all Iran transactions through banks that are not exposed to the US financial system, it said.

Brenda Shaffer, an energy expert at the US Naval Postgraduate School, said the US will likely maintain its soft enforcement of Iran oil sanctions, in part to avoid an oil price spike.

“Regardless of potential new declarations, the Biden administration will not enforce sanctions in a serious manner in an election year, when there are formally sanctions on Iran, Russia and Venezuela, and the Strategic Petroleum Reserve is low,” Shaffer said.

Washington has even asked Ukraine not to attack Russian energy supplies, despite its effectiveness in battle, due to fears of a rise in the global oil price, Shaffer said. “The administration has not even taken serious steps to neutralize Iran's proxy—the Houthis—disruption of global shipping,” she said.

Speaking to Fox News on Sunday, Representative Steve Scalise the No. 2 House Republican, said the administration had made it easier for Iran to sell its oil, generating revenues that were being used to “go fund terrorist activity.”

Several regional analysts said they doubted Biden would take significant action to ramp up enforcement of existing US sanctions to choke off Iran's crude exports, the lifeblood of its economy.

“Even if these bills pass, it's hard to see the Biden administration going into overdrive, to try to spring into action or enforce existing sanctions or new ones to try to cut or curb (Iranian oil exports) in any meaningful way,” said Scott Modell, a former CIA officer, now CEO of Rapidan Energy Group.

The China Factor

Aggressively enforcing sanctions could also destabilize the US-China relationship, which Chinese and US officials have tried to repair following a rocky period after the US last year downed a suspected Chinese surveillance balloon that crossed US territory.

Tanker tracking specialist Vortexa Analytics estimated China acquired a record 55.6 million metric tons or 1.11 million barrels of Iranian crude a day last year. That amounted to roughly 90% of Iran's crude oil exports and 10% of China's oil imports.

Several analysts suggested Washington might take some action to cut Iran's oil exports in part to temper any Israeli reaction to the Iranian strikes, which could escalate the conflict.

But they said this would fall short of dramatic action such as sanctioning a major Chinese financial institution and instead could involve targeting Chinese or other entities engaged in such trade.

“If you really want to go after Iran's oil exports yes, you would have to take meaningful action against China,” said one source familiar with the issue.

“Are you really going to go after the big banks? Are you going to do something that the administration has not done and even the Trump administration did not do?” he added.

Jon Alterman, a Middle East analyst at the Center for Strategic and International Studies, said there were limits to what Washington can do to impose sanctions and that evaders are adept at finding loopholes.

“I'd expect to see a gesture in the direction of (imposing) economic consequences on Iran, but I don't expect the White House — or any future White House — to be able to completely turn off the spigot of Iranian oil,” he said.

Iranian Oil Exports

Iran, the third largest producer in the Organization of the Petroleum Exporting Countries (OPEC), produces about 3 million barrels of oil per day (bpd), or around 3% of total world output, according to Reuters.

The US has sought to limit Iran's oil exports since President Donald Trump exited a 2015 nuclear accord between Western powers and Iran in 2018 and re-imposed sanctions aimed at curbing Iran's revenue.

During Trump's term, Iran's oil exports slowed to a trickle.

They have risen during Biden's tenure as analysts say sanctions have been less rigorously enforced, Iran has succeeded in evading them, and as China has become a major buyer, according to industry trackers.

Although a member of OPEC and OPEC+ - which brings together OPEC and allies, including Russia - Iran, because of the sanctions imposed on it, is exempt from the group’s output restrictions that are designed to support the oil market.

Rising Output

Driven by strong Chinese demand last year and continuing into 2024, Iran's crude exports in March averaged 1.61 million bpd according to industry analysts Kpler, the highest since May 2023 when they were 1.68 million bpd, the highest since 2018.

The peaks of 2018 reflected the easing of sanctions that followed the 2015 nuclear deal with Iran.

Iranian crude and condensate exports reached 2.8 million bpd in May 2018, the highest since at least 2013 according to industry analysts Kpler.

In May 2018, the crude oil portion of Iran's exports was 2.51 million bpd, Kpler found. According to OPEC data, that was the most since 2011 when Iran exported 2.54 million bpd on average.

Iran's oil production reached all-time highs in the 1970s with a peak of 6.02 million bpd in 1974, according to OPEC data. That amounted to over 10% of world output at the time.

Trump and Biden

Also in May 2018, the United States under Trump's presidency unilaterally withdrew from the 2015 deal and re-imposed sanctions, aiming to cut Iran's oil sales to zero.

Iran stopped providing data on its oil exports, but assessments based on tanker tracking show they fell sharply in the next two years to below 200,000 bpd in some months of 2020, the lowest since at least 1980 according to OPEC data.

In late 2020, Biden won the US presidential election.

In January-March 2021, China increased its imports of Iranian oil to almost 800,000 bpd in January and almost 1 million bpd in March, although imports dropped again in April of that year.

In 2021, Iran and the US began indirect talks meant to bring both countries back into full compliance with the 2015 nuclear deal. Iranian exports rose during 2022, ending the year above 1 million bpd.

Analysts have said the higher exports appear to be partly a result of Iran's success in evading US sanctions.

Iran has for years evaded sanctions through ship-to-ship transfers and “spoofing” - or manipulating GPS transponders so that ships show up in different positions - and the country is getting better at such tactics, analysts have said.

Analysts have also said the rise in exports appears to be the result of US discretion in enforcing the sanctions.

Saudi Arabia to Sell 0.64% Aramco Stake

Saudi Arabia is offering 1.545 billion Aramco shares. Reuters
Saudi Arabia is offering 1.545 billion Aramco shares. Reuters

Saudi Arabia to Sell 0.64% Aramco Stake

Saudi Arabia is offering 1.545 billion Aramco shares. Reuters
Saudi Arabia is offering 1.545 billion Aramco shares. Reuters

Saudi Arabia is selling a 0.64% stake in oil giant Aramco, a statement said on Thursday.

Saudi Arabia is offering 1.545 billion Aramco shares and the offering period will commence on June 2.

The price range is expected to be between SAR 26.70 and SAR 29.00 per share.