Donald Trump's return to the White House poses questions for the oil market, not least what it might mean for Iran's rising crude exports. Early signs suggest Trump intends to dial up the pressure on Tehran and its oil sales, but repeating the playbook from his first presidency is unlikely to deliver the same result today.
Iran's oil exports have been on the rise since Joe Biden's election win against Trump four years ago. Before he took office, Biden's talk on the campaign trail about wanting to revive the 2015 nuclear deal — which Trump reneged on in 2018 before reimposing sanctions on Iran — created space for a relative easing of tensions. That, in turn, paved the way for a recovery in Iranian oil sales.
Iran's crude and condensate exports were averaging below 500,000 b/d throughout the second half of 2019 and 2020 as Trump-era sanctions took effect, but they began to tick up in 2021 and have carried on rising ever since. Exports averaged around 1.6mn b/d in January-October this year, according to data from analytics firms Kpler and Vortexa, just 500,000-600,000 b/d short of what Iran was selling in the two years before the sanctions were reimposed.
Biden's detractors, many from across the aisle, pointed to the recovery in Iran's exports as proof that his administration was not properly enforcing the sanctions imposed under Trump, and that it was intentionally looking the other way. Biden's team regularly dismissed those claims, insisting enforcement was ongoing.
The truth is that there is a cat and mouse game between sanctions enforcers and countries under sanctions. It took Iran 18 months to rebuild networks bypassing the sanctions regime. Russia, subject to a less onerous G7 price cap, similarly figured out ways to break through the sanctions noose. A batch of Iranian tanker-focused sanctions imposed under Biden since late last year appears to have had an effect on delivered prices to China, and yet Iran's exports have continued to climb.
Those were the days
A second Trump presidency will bring an opportunity for change. Given his first administration's hawkish stance towards Iran, there is an overwhelming expectation that he and his new team will set out to tighten the economic grip on Iran in an effort to limit Tehran's ability to financially support its proxies in the region.
The stated goal of Trump's maximum pressure campaign in 2018 was to drive Iran's oil exports to zero, from above 2mn b/d. And although it ultimately failed to deliver that, reducing exports to less than a quarter of pre-sanctions levels still constituted success. However, repeating that success in 2025 and beyond will be a tall order.
Analysts canvassed by Argus argue that pressing ahead with sanctions, even with stricter enforcement, would at best deliver a limited reduction, largely because Iranian oil trade today is not what it was in 2018.
"Today, everyone who had been wary of the implications of being involved has already left the game. And those who do remain are those who do not necessarily fear sanctions," said Iman Nasseri, managing director for the Middle East at consultancy FGE.
In 2018, around-three quarters of Iran's 2mn b/d or so of exports went to buyers in Europe, Asia-Pacific, Turkey and the UAE. The rest was going to China, to a mix of state-owned and private-sector companies. The threat of sanctions subsequently deterred almost everyone from taking Iranian crude except for Chinese independent refiners, pushing Tehran's exports below 500,000 b/d.
Chinese independents have since gradually increased their intake of discounted Iranian crude to the point that they have been collectively taking around 1.5mn b/d in recent months. The remaining 100,000-200,000 b/d has been going to Iran's allies Syria and Venezuela.
"With the majority of exports going to independent and private players in China who are not really worried about sanctions, or exposed to the US financial market, we should not expect a change in their behaviour," Nasseri says. "At best, we could be looking at a fall of 200,000-500,000 b/d" owing to increased enforcement.
Homayoun Falakshahi, senior oil analyst at Kpler, also expects limited results should Trump choose to again focus his efforts on sanctions and enforcement, unless he is prepared to work with Beijing to put pressure on those independent refiners that are single-handedly keeping Iran's oil lifeline open.
"Trump could try to trade off the Iranian issue with something of more significance to China," Falakshahi said, although he admits it will be "very difficult" to convince Beijing. "There would be significant pushback from Chinese officials, especially now, when refining margins are weak," he said. "You would be taking out one of the cheapest feedstocks going to Chinese refiners."
Falakshahi sees no real impact in the short term, given the vast and intricate network of middlemen and entities that Iran has built to facilitate its oil trade in recent years. But the market "could see a decrease of 500,000-600,000 b/d in Iranian exports" by the summer of 2025, he said.
A different approach
Another challenge for the new Trump administration is the speed at which Iran has been expanding its tanker fleet in recent years. Biden's administration has responded with a record number of vessel-specific sanctions this year. "And that could go further after Trump takes office," said Armen Azizian, senior oil risk analyst at Vortexa.
Some of the tankers that have been sanctioned by the US are "having difficulties on the water", he added. "We've seen cargoes on the water for longer, and some other tankers have been restricted to domestic trade. If they were to sanction more VLCCs, you would see an impact."
Even so, Tehran still has plenty of opportunity to carry on expanding its fleet.
"Iran has been growing its dark fleet for two years now," Azizian said. "The average age of the VLCCs joining the dark fleet has been 18 years, and there are many candidates that could join over the next year. So, while Trump could change how things are done, so long as Iran continues to expand its fleet, it shouldn't have a problem continuing its trade."
