Iranian exports of crude oil and condensate plunged rapidly in May to a historic low of less than 500,000 barrels per day and possibly as low as 250,000 barrels. This rapid decrease points to both the surprising effectiveness of U.S. sanctions and the likelihood of increased financial hardship for Tehran in the coming months.
Iranian exports reached their previous low point of 600,000 barrels per day in January 2013, at the height of sanctions prior to the 2015 nuclear deal. Yet Tehran’s average monthly exports remained slightly above 1 million barrels per day in 2013 and 2014.
Exports recovered rapidly following the conclusion of the nuclear deal and the concomitant suspension of sanctions, including on oil. By early 2018, exports were averaging 2.4 million barrels per day, with a peak of more than 2.8 million in April, the last full month before the Trump administration withdrew from the deal.
While the U.S. reinstated oil sanctions in November 2018, it provided exemptions (waivers) to eight countries to purchase specified volumes of crude and condensate totaling just over 1 million barrels per day, although actual exports soon rose much higher. The waivers had a duration of six months, but were renewable at the State Department’s discretion.
In late April, Secretary of State Mike Pompeo stunned oil market analysts by announcing there would be no more waivers and the U.S. would seek to drive Iranian exports down to zero immediately. The challenge for the U.S. would be to secure compliance from top buyers of Iranian oil, China and India, and other states such as Turkey that were frequent critics of sanctions.
China sharply criticized the Trump administration for ending the waivers, yet the country’s top state-owned refiners, Sinopec and CNPC, bought no Iranian oil for loading in May, the month following the expiration of their waiver. Turkish criticism was no less vehement, yet its government also chose to comply. India stopped buying oil as well, a move facilitated by a separate U.S. exemption that allows Indian firms to continue operating the Iranian port of Chabahar.
While there are no acknowledged buyers of Iranian oil at the moment, vessel monitoring services from Bloomberg and Tanker Trackers have documented the departure of several tankers from Iran in May. Two of the vessels delivered their cargo to Syria in violation of U.S. and EU sanctions targeting the regime of Bashar al-Assad. Two others appear to remain at sea, based on the signals from their transponders.
Another ship, the Pacific Bravo, appeared to be headed for China, yet senior U.S. officials warned potential buyers that Washington would punish those involved in the purchase. The ship has now turned away from China and its new destination is unclear.
Bloomberg’s monitoring service estimates Iran’s total exports for May at 226,000 barrels per day, or a total of 7 million barrels. Reuters is reporting an estimated figure of 400,000 barrels. Yet customers like the cash-strapped Assad regime may only be paying with IOUs, not hard currency that relieves the financial pressure on Tehran.
The U.S. must sustain pressure on Iran’s oil exports to ensure that this historic low lasts longer than the previous nadir in 2013. The price of Brent crude has fallen by about $12 per barrel, or 20 percent, since May 1, indicating that markets are adjusting well to the loss of Iranian supply. The White House should be patient as its economic vise tightens, relieving sanctions only when Tehran complies with the 12 conditions that Pompeo enumerated as part of an acceptable and comprehensive deal.
David Adesnik is the 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.