Funding the Enemy: Trump Rolls Back Sanctions on Iran Without Any Guardrails

On the evening of March 20, the Trump administration issued Iran General License U (GL U), a one-month authorization for the sale of what Treasury Secretary Scott Bessent says will be approximately 140 million barrels of sanctioned Iranian crude currently at sea. This is the latest attempt by the Trump administration to introduce additional energy supply to a global market reeling from the effective closure of the Strait of Hormuz, which normally carries approximately one-quarter of global seaborne oil trade and about one-fifth of global LNG trade.

While the Trump administration continues to strike targets on the ground in Iran, GL U is meant to fight a different battle — a battle for the market. Tellingly, Iran’s oil ministry spokesman Saman Ghodousi posted on X before the release of GL U that Iran has no oil supply on the water to relieve international markets. That is false — as is the likelihood that allowing sales of Iranian oil on the global market will stabilize market worries surrounding supply and price.

GL U is similar to — though noticeably more expansive than — a general license issued earlier this month authorizing the sale of sanctioned Russian crude. With that general license failing to materially mitigate concerns regarding global oil supply and price spikes, the administration is now effectively authorizing what could provide billions in revenue directly to the regime it is fighting — and it is doing so without requiring any reporting on who buys the oil, who sells it, how much it is bought for, or how the proceeds reach Tehran.  

According to Bloomberg, “The global oil benchmark settled Friday above $112 a barrel — the highest level since mid-2022 — before easing in post-settlement trading after President Donald Trump said he was considering ‘winding down’ US military efforts against Iran.” Trump’s comments arrive just days after the Pentagon requested White House support for more than $200 billion in supplemental funds to wage the war in Iran.

A Check to the Enemy and Potential Benefit for Beijing

GL U authorizes all transactions “ordinarily incident and necessary to the sale, delivery, or offloading” of Iranian-origin crude oil and petroleum products loaded on vessels — including already sanctioned shadow fleet vessels — on or before 12:01 a.m. Eastern Daylight Time, March 20, 2026, through 12:01 a.m. Eastern Daylight Time, April 19, 2026.

Unlike recent Venezuelan oil-related general licenses, GL U does not include any detailed reporting requirements on how the general license is utilized on either the buy- or sell-side of relevant transactions. Secretary Bessent argued that Iran “will have difficulty accessing any revenue generated.” But GL U contains no escrow mechanism and no obvious restrictions on payment channels. The only notable prohibition included in GL U is that it does not authorize transactions with persons located in, or organized under, the laws of North Korea, Cuba, or the Russian-occupied territories of Ukraine. That means the sale of Iranian crude oil and petroleum products could involve individuals and entities in Russia who are reportedly providing Iran with intelligence to attack American troops.

Notably, GL U explicitly authorizes the importation into the United States of Iranian-origin crude oil and petroleum products. This highly unusual provision was not included in the Russian oil general license issued earlier this month. U.S. importation of Iranian crude has been prohibited for decades under successive maximum pressure campaigns. GL U quietly opens that door even as the United States is at war with Iran.

GL U also arrives as Iran appears to be building a parallel maritime and economic architecture around the Strait of Hormuz. On March 18, the maritime news outlet Lloyd’s List reported that Iran has established a de facto “safe” shipping corridor through its territorial waters in the strait, offering passage in exchange for payment. At least nine ships — or approximately 10 percent of all ship traffic through the strait since the outset of the war — have transited the corridor so far, with one payment of approximately $2 million reportedly collected.

According to Lloyd’s List, Tehran’s Islamic Revolutionary Guard Corps has set up a “nascent” ship registration system for participating vessels and is actively working to establish a more formalized “vessel approval process.” The governments of India, Pakistan, Iraq, Malaysia, and China have all reportedly begun discussions with Iran over securing access to the corridor, which is being overseen by IRGC officials from Larak Island just 20 miles from mainland Iran. Larak Island reportedly houses a Russian-made satellite communications jamming system under Iran’s layered air defense networks, along with Iranian naval infantry and fast-attack vessels armed with anti-ship missiles.

What’s more, CNN reported on March 14 that Iran may authorize tankers to pass through the strait, provided their oil cargo is traded in Chinese yuan. The administration therefore appears to be easing sanctions on Iranian oil — and, remarkably, authorizing its importation into the United States — at the same moment Tehran may be constructing a yuan-denominated transit regime that could deepen Beijing’s influence in the Strait of Hormuz. GL U’s absence of reporting requirements exacerbates this problem.

China may also stand to benefit from GL U because it continues to hold millions of barrels of Iranian oil in storage tanks at Dalian and Zhoushan. In 2018, President Trump issued sanctions waivers allowing China to temporarily purchase and handle Iranian oil, but he revoked those waivers the following year, leaving China with roughly 25 million barrels in storage. Beijing reportedly permitted Iran to reclaim nearly 3 million of those barrels in January 2025, but it does not appear to have allowed access to the remainder. That is striking given China’s longstanding role as the main buyer of Iran’s sanctioned crude, and it illustrates the degree to which well-enforced sanctions can still shape adversary behavior. China may now seek to draw down the roughly 22 million barrels it continues to hold, even if such conduct may not be authorized under a plain reading of GL U.

Supply Challenges and Statutory Risk Will Remain

The supply impact may also be smaller than the administration suggests. Secretary Bessent claims 140 million barrels of Iranian crude are at sea. That differs from recent Goldman Sachs estimates that suggest 105 million barrels of Iranian oil are at sea, with 131 million barrels of Russian crude at sea as well. The Wall Street Journal reports the combined barrels “would only offset about two weeks of disrupted flows through the now-paralyzed Strait of Hormuz” — and that is before accounting for barrels that were already sold and destined for China, India, or Turkey before GL U was issued.

Additionally, despite GL U’s extremely broad language, entities relying on the general license should understand its legal limits. The license authorizes transactions otherwise prohibited under OFAC-administered executive orders and regulations. But general licenses cannot waive statutory sanctions. At least 18 federal laws related to Iran sanctions remain in force. Any entity that facilitates the purchase of Iranian crude during the window authorized by GL U could still face significant risk of sanctions. Such enforcement would require a particularly aggressive posture from Congress or a future administration, but the exposure is real and should not be discounted by any parties considering purchasing Iranian crude oil or petroleum products.

The Enforcement Alternative Is No Shortcut

Alternatives to the administration’s approach — such as rapidly interdicting Iran’s shadow fleet tankers, seizing the regime’s oil, and selling it on the global market — also face challenges, though, potentially, the unusual U.S. military presence in the region suggests this option may currently be under consideration.

According to the Iran watchdog group United Against Nuclear Iran, 29 Iranian shadow fleet tankers were anchored or loitering in the East Outer Port Limits (EOPL) area off the coast of Malaysia with their AIS signals active. EOPL is a well-known sanctions evasion and ship-to-ship transfer hotspot. According to one open-source maritime security analyst, the expeditionary sea base USS John L. Canley is currently positioned nearby — specifically near “at least 13 [Iranian]-flagged tankers.” ESB vessels have been used for sanctions enforcement before, including to interdict shadow fleet tankers off the coast of Venezuela. With GL U now in place, the role of the ESB in this evasion hotspot is unclear — though it may point to a potential effort to interdict Iranian-flagged oil tankers.

Recent efforts to seize shadow fleet tankers and sell sanctioned oil has proven difficult. The United States seized the Skipper off the coast of Venezuela in December carrying just 1.8 million barrels of crude. Three months later, the oil has still not been sold, in part due to creditor disputes that may not necessarily apply in the Iranian context. But the costs are staggering: the government has already spent $47 million repairing and maintaining the vessel, which is only worth $10 million. Meanwhile, according to The New York Times, the ship’s ongoing storage costs $450,000 per month. Applying even a fraction of that cost structure to the current problem would be daunting. Seizing millions of barrels of sanctioned crude at sea could involve action against dozens of tankers and quickly rack up tens of millions of dollars in expenses per ship.

What’s more, even if the government could secure interlocutory sales — which would allow for oil to be sold before a court formally authorizes the forfeiture — moving that volume to market quickly is far from assured. The administration understandably wants oil to flow now, not after months of litigation. That urgency helps explain GL U, but it does not excuse GL U’s lack of safeguards to prevent Iran from benefiting in the process.

Impose Escrow Safeguards and Transparent Reporting Requirements

The administration should urgently amend GL U to establish an escrow mechanism that ensures revenue does not immediately reach the regime in Iran or yuan-denominated accounts in China. It should also require entities relying on the license to report buy-side and sell-side information to the U.S. Treasury Department’s Office of Foreign Assets Control — including, but not limited to, pricing, quantity, counterparties, and the financial institutions facilitating payment. It should also explore whether any of the authorities currently being used for military operations in Iran could accelerate the forfeiture timeline for interdicted tankers.

The president’s signal that operations in Iran may be “winding down” makes these safeguards more urgent than ever. It also makes striking the Iranian regime’s military facilities on Larak Island a strategic imperative. Striking these facilities would eliminate Iran’s ability to validate which vessels are cleared for transit through what could potentially be a yuan-backed maritime transit corridor — and, with it, the corridor’s operational backbone.

If the war ends without total Western control over the Strait of Hormuz, Washington will need every available tool to sustain economic pressure on Tehran. Authorizing the sale of Iranian crude without conditions surrenders leverage the United States may not soon recover. It isn’t too late to reverse course.

Max Meizlish is a research fellow for the Center on Economic and Financial Power (CEFP) at the Foundation for Defense of Democracies (FDD). For more analysis from Max and CEFP, please subscribe HERE. Follow Max on X @maxmeizlish. Follow FDD on X @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.