Iran’s Oil Exports Rise as U.S. Looks to Rejoin Nuclear Accord

18 May 2021

Iran’s Oil Exports Rise as U.S. Looks to Rejoin Nuclear Accord

The effectiveness of U.S. sanctions is being called into question as Iran and its oil buyers test whether penalties are worth the risk amid diplomatic negotiations.

By Lara Jakes

May 18, 2021


WASHINGTON — Iran is exporting hundreds of thousands of barrels of oil each day, violating American sanctions even as world powers negotiate to lift the economic penalties and revitalize a nuclear accord that was rendered all but defunct by the Trump administration.

The oil exports have been rising over the past year, according to data and analysts who monitor a collection of monthly statistics and satellite images from around the world. Iran’s exports sharply increased last winter, the data show, after the November elections.

That has raised questions about the effectiveness of American sanctions when they are imposed unilaterally, as they were during the Trump administration. And it suggests that Iran and its oil buyers may be betting that any penalties they may face are worth the risk as the Biden administration works to rejoin the nuclear deal that Mr. Trump jettisoned in May 2018.

Starting in December, Iran “went to the market very boldly,” said Fereidun Fesharaki, the founder and chairman of FGE, an energy consulting group.

“They felt that, ‘OK, if I’m negotiating with the U.S., they are not going to screw with me by putting on additional sanctions,’” said Mr. Fesharaki, who is also a nonresident scholar at the Center for Strategic and International Studies, a think tank in Washington.

State Department officials dispute any suggestion they have been lax in enforcing the web of economic penalties that under President Donald J. Trump sought to weaken Iran’s economy by prohibiting its oil exports and, in turn, force Tehran to negotiate a new deal to limit its nuclear and military programs.

President Biden has long cast the Trump administration’s pressure campaign against Iran — which relied on sanctions — as a diplomatic blunder that irritated key American allies in Europe and gave adversaries in China and Russia even more reason to distrust the United States. Over the past month, international negotiators have been meeting in Vienna to try to revive the original nuclear accord that Iran has steadily violated since the United States withdrew from it.

Last week, inspectors from the International Atomic Energy Agency concluded that Iran has been enriching uranium — the fuel for a nuclear weapon — at levels far beyond the limits set by the 2015 deal.

That has only added to the urgency in Vienna for an agreement that would involve Iran ratcheting back its nuclear program in exchange for relief from American sanctions.

“An Iran with a nuclear weapon, or with the capacity to have one in very short order, is an Iran that’s likely to act with even greater impunity when it comes to these other actions,” Secretary of State Antony J. Blinken said last week when asked about Tehran’s support for militant groups elsewhere in the Middle East. “So, the talks go on in Vienna, in an effort to see if we can return to full compliance.”

The U.S. sanctions have plunged Iran’s economy into a recession that only deepened during the pandemic.

But they have not stopped Iran from exporting its oil.

Given the clandestine nature of its illicit oil sales, Iran’s exports are estimated monthly by market analysts based on the country’s production levels and storage capacity, international shipping data and imports by foreign buyers of Iran’s distinctive crude. A precise and accurate amount of monthly exports is not known, and estimates vary.

Still, analysts generally agree Iran’s oil exports began steadily rising late last summer. That followed what State Department officials described as historic export lows after the pandemic caused a global drop in demand for fuel.

It also reflected a growing willingness among international buyers to gamble against the American sanctions after their abrupt effect on markets just a year earlier.

In May 2018, the month Mr. Trump withdrew from the nuclear deal, Iran exported an estimated 3.2 million barrels of oil daily, including 2.4 million barrels of crude, according to data compiled by FGE. The energy consultancy provides its estimates to the State Department and the Treasury Department, Mr. Fesharaki said.

Six months later, when sanctions were imposed, exports had dipped to 1.2 million barrels per day, including 952,000 barrels of crude. Iran’s exports hit their lowest point in February 2020, with only 137,000 barrels of crude among the total 606,000 barrels per day.

Exports have since surged this year to 1.7 million barrels per day from January through March, before dropping slightly last month, the FGE data show.

Mr. Fesharaki said much of Iran’s crude exports went to small, independent oil refineries in China and were almost certainly sold at heavily discounted prices — making it worth the risk to the buyers to test whether they would be caught violating the sanctions.

separate analysis, compiled by the private advocacy group United Against Nuclear Iran, a critic of the 2015 nuclear accord, also indicated that the vast majority of Iran’s crude and condensate oil exports has headed to China since last October.

The group estimated that Iran exported 993,000 barrels per day in March to China, but that dipped to 448,000 barrels per day in April. Importers in Syria appeared to buy the second-highest number of barrels, followed by the United Arab Emirates and Malaysia, the group’s analysis found.

The fact that some exports are continuing — and, in China’s case, are being sold in a country that helped negotiate the 2015 nuclear accord — points to what Senator Christopher S. Murphy, Democrat of Connecticut, called “a policy cataclysm” that demonstrated the sanctions’ weakness.

“Trump imposed sanctions and our partners, instead of following America’s lead, effectively took the Iranian side — even helping Iran work around our sanctions,” Mr. Murphy said last week at a Middle East Institute forum.

“Trump’s maximum pressure campaign was a spectacular failure,” Mr. Murphy said.

A State Department official said Mr. Blinken and Jake Sullivan, the national security adviser, noted their displeasure over the oil imports with senior Chinese diplomats in March during a two-day meeting in Anchorage.

But, the official said, the United States has been challenged to enforce the sanctions without reliable help from allies and as traders play a “cat-and-mouse game” to avoid being tracked on the high seas. The official spoke on the condition of anonymity while the Iran talks were continuing.

U.S. Navy and Coast Guard ships conducting security patrols in the Strait of Hormuz and the Persian Gulf have been confronted by Iranian military vessels three times over the past month, heightening tensions that could, if allowed to escalate, threaten the delicate nuclear negotiations in Vienna. Twenty percent of the global oil supply — about 18 million barrels each day — flows through the strait.

Other world powers have been reluctant to enforce sanctions that were imposed, over their objections, when the United States left the nuclear deal in 2018. The most notable example came last fall, when the Trump administration declared it had reimposed international sanctions against Iran that the United Nations Security Council refused to recognize.

The United States has also warned that it could impose what are known as secondary sanctions on foreign buyers of Iran’s oil, which would cut them out of American markets and other transactions that are processed in U.S. dollars. That has spooked international companies that do not want to lose access to American banks and some analysts said that it has hurt relations between the United States and European allies who had hoped the nuclear deal would open new economic markets for their industries in Iran.

“If the United States tries to use sanctions for everything, and tries to tell the rest of the world what it can and can’t do, at some point other countries could well push back and say, ‘We’ve had enough of this,’” said Corinne A. Goldstein, a sanctions expert and senior counsel at the law firm Covington & Burling. “So I think the United States risks losing the power of sanctions by abusing their use.”

Since January, The Treasury Department’s Office of Foreign Assets Control has fined companies more than $2.1 million for violating its sanctions against Iran to settle or otherwise resolve yearslong cases, some of which began under President Barack Obama. The Treasury Department resolved about as many violations of Iran sanctions for all of 2020, including a $4.1 million settlement with Berkshire Hathaway after one of its Turkish subsidiaries was accused of selling goods to Iran and then trying to hide the transaction.

Elliott Abrams, who oversaw the drumbeat of sanctions against Iran toward the end of the Trump administration, said the penalties blocked revenues worth tens of billions of dollars to Tehran, limiting how much support Iran could devote to its nuclear and military programs, including its proxy forces across the Middle East.

In doing so, he said, the Trump administration was already chipping away at what Mr. Biden has identified as the next diplomatic goal after returning to the nuclear accord: a follow-on agreement to extend its current expiration dates and prohibit Iran’s nefarious activities in the region.

“That’s a success, and it can be measured by Iran’s efforts to get sanctions dropped or to get around them,” Mr. Abrams said last week.

“No sanctions regime is ever 100 percent effective,” he said, “because there are always ways to cheat and companies willing to take the risk.”