Iranian oil exports climbed to roughly 1.7 million barrels per day in March, an increase of 70 percent compared to three months earlier. This poses a direct challenge to the Trump administration, which seeks to reduce Iranian exports to zero while maintaining stable prices.
Tehran’s oil exports peaked at about 2.8 million barrels per day (bpd) in April of last year, with typical volumes closer to 2.4 million bpd. The U.S. then withdrew from the nuclear deal with Iran in May and reinstated its sanctions in early November. By that time, Iranian exports had fallen below 1.8 million bpd.
After declining further to less than 1 million bpd at the end of 2018, Iranian exports have grown steadily in 2019. Bloomberg reported that Iranian exports reached 1.76 million bpd in March, while S&P Global put the figure at 1.70 million, and Tanker Trackers provided the highest estimate, 1.80 million.
One major driver of this growth is China’s appetite for imported oil it can purchase at a discount because of sanctions. Bloomberg shows Chinese imports rising to 613,000 bpd in March, compared to 452,000 bpd in January. Tanker Trackers concluded that Chinese imports in March had actually risen to 767,000 bpd.
China and seven other countries have permission to import Iranian oil pursuant to six-month waivers that the U.S. granted last November when it reinstated sanctions on Iran. Each waiver authorizes a specific volume of imports, but the State Department has not made those amounts public. Nor has the department clarified whether the cap applies to monthly imports, or to average imports over the full six-month period.
News reports indicate that China has permission to import 360,000 bpd, India 300,000, South Korea 200,000, Japan 150,000, and Turkey 60,000, for a total of slightly more than 1 million bpd. Taiwan, Italy, and Greece also received waivers, but so far have not imported Iranian crude.
Since January, U.S. officials have warned that Washington will not renew the waivers. They have also expressed confidence that removing all Iranian oil from the marketplace will not drive prices higher because there is ample supply available to meet demand. Prominent senators from the president’s party have also voiced their support for pushing Iranian exports to zero.
On the other hand, President Trump tweeted last month, “Very important that OPEC increase the flow of oil. World markets are fragile, price of oil getting too high.” Supply cuts by the cartel have led to a $15 increase in the price per barrel of Brent Crude, which passed $70 this week. Prices at the pump for U.S. consumers have risen to $2.75 per gallon, an increase of about 50 cents this year.
Slashing Tehran’s oil exports is an essential component of Washington’s maximum pressure campaign against Iran. In the announcement of his budget proposal for 2019, Iranian President Hassan Rouhani said last December, “If the budget did not rely heavily on oil, the impact of sanctions would have been much less.” His proposal assumed maximum oil revenue of about $30 billion, based on exports of 1.5 million bpd and a price of $54 per barrel. In effect, the proposal assumes a loss of at least 900,000 bpd of exports compared to the previous year, depriving Tehran of roughly $18 billion.
The U.S. should not hesitate to reduce Iranian exports substantially by cutting the import allowance associated with each oil waiver. Vigorous enforcement of sanctions will also be essential. A reduction to zero may not be possible in May, yet any substantial reduction will hurt a regime so dependent on oil.
David Adesnik is director of research at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). Follow David on Twitter @adesnik. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.