Energy Security amid New U.S. Sanctions on Iran
Dr. Zheer Ahmed
Energy security has long been a central pillar of geopolitical strategy, influencing alliances, economic stability, and global power dynamics. The recent revival of former United States (US) President Donald Trump’s ‘maximum pressure’ campaign against Iran signals a renewed effort to curb Tehran’s oil exports. This move will not only threaten Iran’s economy, but also disrupt global energy market. This will affect key stakeholders, including China, the world’s largest importer of Iranian crude oil. The unfolding scenario has profound geopolitical implications, particularly in shaping alliances within OPEC, determining US-China relations, and impacting global energy market.
Under Trump’s first administration, the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018 and reimposed stringent economic sanctions on Iran. These sanctions targeted Iran’s oil exports, leading to a steep decline in production, with monthly exports falling as low as 200,000 barrels per day (bpd) in 2020. However, Iran’s oil exports rebounded significantly under President Joe Biden’s tenure, reaching approximately 1.5 million bpd in 2023, with China as the primary buyer. As Trump reinstating his ‘maximum pressure’ strategy, the goal is once again to drive Iranian oil exports to zero. This escalation could disrupt global energy markets, especially considering that Iran accounts for about 1.4% of the world’s oil supply. Iranian President Masoud Pezeshkian has called for OPEC unity to resist unilateral US sanctions, emphasizing that collective action could mitigate the impact of these measures.
Iran’s crude exports play a crucial role in global energy security. A sudden removal of 1.5 million bpd from global supply could drive up oil prices, exacerbate inflation, and strain the economies of oil-importing nations. Traditionally, OPEC has responded to US sanctions on Iran by adjusting output levels. In 2018, after the Trump administration reinstated sanctions, OPEC+ production to compensate for the anticipated decline in Iranian supply. However, with Iran assuming the rotating presidency of OPEC in the year 2025, Tehran may leverage its position to resist supply cuts and rally support among member states. Iranian Oil Minister Mohsen Paknejad has stated that depoliticizing the oil market is a vital issue for energy security. He warned that unilateral sanctions against major oil producers could destabilize global energy market, affecting not only producers, but also consumers worldwide. OPEC’s Secretary General Haitham al-Ghais recently visited Iran, signaling potential solidarity within the organization against external pressures.
China’s role in Iran’s oil trade is a critical factor in determining the effectiveness of US sanctions. In 2023, China imported 1.1 million bpd of Iranian crude oil, accounting for 10% of its total oil import. Despite Chinese customs data officially reporting zero Iranian oil import, Iranian crude has continued to reach China through indirect routes, particularly via Malaysia, Oman, and the United Arab Emirates. These ship-to-ship transfers allow Iranian crude to be blended and reclassified, evading sanctions. China’s teapot refineries and small independent operators have been the primary buyers of Iranian oil. Unlike major state-owned enterprises, such as CNPC and Sinopec, which halted Iranian oil purchases in 2019 due to fears of US sanctions. These teapot refineries have minimal exposure to the US financial system, making them less susceptible to secondary sanctions. In 2023, teapots sourced 98% of their crude oil from sanctioned nations, including Iran, Russia, and Venezuela, demonstrating a clear preference for discounted oil.
For China, securing stable energy supplies is a top priority. The Chinese government has historically opposed unilateral sanctions and has been vocal about maintaining its energy trade with Iran. Beijing benefits from discounts on Iranian crude, with reports estimating that China saved approximately USD 4.2 billion in 2023 due to price cuts on sanctioned oil. Given its current economic headwinds, China has strong incentives to continue these imports. If the US intensifies its sanctions enforcement, Chinese state-owned enterprises may further distance themselves from Iranian crude to avoid jeopardizing access to the US financial system. However, teapot refineries, which operate with minimal Western financial exposure, will likely persist in purchasing Iranian oil. Additionally, if the US forces China to reduce its Iranian imports, Beijing may simply shift its purchases to another sanctioned producer, such as Russia, further complicating Washington’s geopolitical calculations.
The effectiveness of US sanctions depends on how other nations respond. If major energy consumers, particularly in Asia, continue buying Iranian oil through indirect channels, the impact of the sanctions will be diminished. On the other hand, if the US succeeds in cutting off Iran’s oil revenue, Tehran may escalate its retaliatory actions, such as threatening maritime security in the Strait of Hormuz, a critical chokepoint for global oil shipments. Moreover, other OPEC+ members, particularly Saudi Arabia will closely monitor the situation. If Iranian exports decline, these nations may adjust production to capitalize on rising prices, further influencing global energy market stability.
The renewed US sanctions against Iran introduce significant uncertainties into global energy market and geopolitical dynamics. While the sanctions aim to weaken Iran’s economy and curtail its nuclear ambitions, their effectiveness is constrained by China’s willingness to continue purchasing Iranian oil. OPEC’s response will also be critical in shaping the trajectory of oil prices and market stability. China’s strategic calculus suggests that it will not abandon Iranian crude entirely, particularly given its economic incentives and opposition to US unilateralism. Meanwhile, Iran’s ability to navigate sanctions through alternative trade mechanisms will determine how severely its economy is impacted. The coming months will reveal whether the US can effectively enforce its sanctions or whether Iran, with the backing of China and potential OPEC solidarity, will find ways to sustain its oil exports. The geopolitical battle over energy security continues to shape the contours of international relations, with profound implications for global energy stability and economic resilience.
Dr. Zheer Ahmed, Assistant Professor, Center of Excellence for Geopolitics and International Studies, REVA University, Bengaluru.
