Why are U.S. Sanctions against Iran’s Oil Exports Ineffective?

( RFE/RL ) – Iran is one of the most sanctioned countries in the world. But restrictions imposed by the United States have largely failed to stymie Iran’s oil exports, the backbone of its flailing economy.

U.S. sanctions have cut off Iran from most of its traditional customers, forcing Tehran to find new buyers and sell its oil at discounted prices.

But China’s willingness to buy record amounts of Iranian oil, Tehran’s mastery of sanctions-evading tactics, and Washington’s reluctance to strictly enforce sanctions have made U.S. measures against Iran’s energy exports ineffective, analysts say.

‘Dark’ Fleet Of Tankers

The lifting of U.S. sanctions as part of the 2015 nuclear deal with world powers allowed Iran to sell its oil to customers in Europe and East Asia. Oil exports reached a peak in 2018.

But exports plummeted after then-President Donald Trump reneged on the nuclear agreement later that year.

Iran has boosted its sales in recent years by circumventing sanctions, including using its “dark fleet” of tankers to illegally transport oil shipments to China.

The tactic involves ship-to-ship operations to offload the oil, middlemen, hidden money transfers, and rebranding the oil to mask its Iranian origin and make it appear to come from a third country.

“Iran is continuously developing and expanding not just the network of middlemen and trading companies involved in the sale of its oil, but also its own fleet of tankers that it predominantly uses to move its crude,” said Nader Itayim, the Middle East editor at the U.K.-based Argus Media.

Chinese Appetite

Growing demand for Iranian oil in China has been key to the surge in Iran’s oil sales.

Ship tracking data collected by Argus shows Iran’s oil exports currently hovering at 1.5 million barrels per day, with around 85 to 90 percent going to China.

Tehran gives China a steep discount to take its banned oil, taking up to 15 percent off the price of each barrel to make it worthwhile for Beijing to take on the liability of skirting sanctions.

Al Jazeera English Video: “Latest round of sanctions against Iran unlikely to make major impact”

The discounts have raised questions about the long-term profitability of Iran’s business with China. But experts said that Tehran still stands to gain.

“Even at heavy discounts, selling Iranian oil is extremely profitable and sustainable,” said Steve Hanke, a professor of applied economics at Johns Hopkins University. “That’s because the marginal cost of production in Iran is roughly $15 or less per barrel.”

Gregory Brew, an Iran and energy analyst at the U.S.-based Eurasia Group, says U.S. sanctions were once effective at blocking oil exports to China, but that is no longer the case.

“China’s rising stature as a new global power lends it greater freedom to defy U.S. sanctions,” Brew said.

Reluctance To Enforce Sanctions

Some analysts said Washington has been reluctant to strictly enforce sanctions, while others maintain that sanctions in general have failed.

Resources are required to enforce restrictions while new sectors would need to be sanctioned to keep up the pressure, according to Itayim of Argus Media.

“Otherwise, the target finds ways to evade the sanctions, while at the same time the buyer becomes more complacent as it sees enforcement waning. In the case of Iran and China, I think we have seen a bit of both,” Itayim said.

Analysts also argue that Washington is reluctant to strictly enforce sanctions due to the risks associated with forcing Iranian oil off the world market.

“Apart from the impact such action would have on the price of oil, which carries political and economic importance to [U.S. President Joe] Biden in an election year, aggressive enforcement would provoke both Iran and China, at a time when the United States is trying to manage escalatory risk both in the Middle East and East Asia,” Brew said.

The lax enforcement of oil sanctions also extends to Venezuela and Russia, Itayim says, noting that it “has been key to keeping a lid” on oil prices.

U.S. Congress last month passed a security package that included the Iran-China Energy Sanctions Act, giving the government the authority to further restrict Iran’s oil exports.

But experts are not convinced that more sanctions will have an impact.

Hanke said any new measures “will join the long list of failed Western sanctions” on the Islamic republic.

“Sanctions are always subject to workarounds that render the enforcement of sanctions futile,” he added.

Via RFE/RL

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