Iran’s oil industry has been under sanctions since Donald Trump’s first term. Since then, Iran has seen its pool of buyers shrink to leave only China—but China has been a big enough buyer to not only keep Iran’s oil industry afloat, but help it grow, at least in terms of production. In terms of revenues, perhaps not so much.
One big reason why Iran was able to boost its crude oil production to levels from before the first Trump administration began imposing sanctions on it, was China. China’s insatiable appetite for crude over the past couple of decades has supported not only Iran’s but also Venezuela’s oil industry under sanctions. Yet this has come at a price: deep discounts for Iranian crude because there have been no other buyers out there. For Iran, it’s been a buyer’s market for years and the buyer has been a single one.
However, sanctions have led to another problem for Iran’s oil industry in the financial department. That problem is logistics. As commentator Aqib Hussain noted in a recent article, avoiding sanctions costs—and it costs a lot. Ship-to-ship transfers at sea add to costs; reflagging tankers to mask the origin of the oil adds to costs; avoiding U.S. forces out on tanker hunts adds to costs. In short, Iran may be selling more oil now than it was selling five years ago, but it is also paying more to sell it.
This year may prove to be extra challenging in the wake of the U.S. takeover of Venezuela’s oil industry. Venezuela’s oil is now being sold freely on the global market with Washington’s blessing. This means that buyers have a broader choice of sanction-free crude, which they would understandably choose over sanctioned crude, if discounted crude, seeing as avoiding sanction action is quite a hassle.
Even so, Iran continues to work towards developing more of its oil reserves. Last month, the country’s oil minister Mohsen Paknejad said Tehran was looking for international partners in oil and gas, offering “golden investment opportunities” for potential investors. Paknejad added that Tehran had already built a portfolio of contracts with what local Mehr News cited him as describing as “friendly nations”, at his meeting with Belarusian energy minister Andrei Kuznetsov at the end of last year. In other words, despite its revenue troubles, Iran is not shrinking its oil production—it is expanding it. It makes sense, really. When an oil producer is forced to sell the commodity cheaply, they normally make up for the low price with higher volumes.
As noted, this would be a bit challenging for Iran in the context of the Venezuelan events, but just how challenging it would be remains to be seen. After all, despite multiple reports about China’s weakening oil demand, imports last year hit another all-time high, reaching 11.55 million barrels daily, or a total of 557.73 million tons, up 4.4% on 2024. Higher Chinese purchases have helped support oil prices despite the OPEC+ production hikes and persistent concerns about the growth rate of global oil demand amid inconsistent U.S. trade policies and tariffs. And that includes prices for Iran.
Ironically, the current threats that the Trump administration is making to Iran have served to strengthen prices further—something from which Tehran can benefit in the oil revenue department—potentially. Analysts are already revising their price projections on the heightened risk of a U.S. strike on Iran. Of course, an actual attack on one of OPEC’s biggest oil producers would send oil much higher, but the price for that may end up being too high for Iran. After all, oil facilities would be prime targets for strikes.
By Charles Kennedy for Oilprice.com
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