US looks to tighten oil sanctions enforcement on Iran, de-escalate nuclear progress

As Iran continues to advance its nuclear program, US authorities have again turned their attention to tightening enforcement of sanctions on Iran's oil and petrochemical sales, cracking down March 2 on six companies and 20 vessels that have facilitated Iran's energy exports.

Oil smuggling networks have allowed Iran to continue generating hundreds of millions of dollars of oil revenue in contravention of US-imposed sanctions on the country's oil sector. The Biden administration since last May has turned up the heat on these illicit sales, targeting sanctions evasion efforts through several rounds of new sanctions.

The administration has set a goal of reducing Iran's crude and condensate exports by 400,000 b/d over the coming months to 1 million b/d, analysts at Rapidan Energy Group said in a research note aimed at debunking assertions that progress toward a prisoner swap could signal an easing of oil sanctions.

To the contrary, "Washington remains very pessimistic on the prospects for a bigger deal," the analysts said. "However, Biden's Iran team hopes the combination of tighter sanctions enforcement and a series of confidence-building-measures (like the prisoner deal) can lead to an informal arrangement this summer to freeze Iran's nuclear activities and reduce the risk of an Israeli military strike. But any such deal would leave oil sanctions in place."

New sanctions

The latest sanctions hit Vietnam-based Golden Lotus Oil Gas and Real Estate for its role in transporting petroleum products from Iran, and eight of the company's vessels were designated as blocked property, the US State Department said March 2.

China's Global Marine Ship Management and Shanghai Xuanrun Shipping and UAE-based Swedish Management were also sanctioned by State for taking part in the transport of petrochemical products out of Iran, while Iran's Shiraz Petrochemical and Bushehr Petrochemical were sanctioned for their roles in the sale of petrochemical products.

Six vessels owned by Swedish Management and six owned by Shanghai Xuanrun Shipping were also identified as blocked property, State said.

In coordination with these actions, the US Treasury Department March 2 issued a general license authorizing through June 30 transactions tied to the wind down of those 20 newly blocked vessels or necessary to ensure safe docking and anchoring, preservation of the health and safety of their crews, emergency repairs or environmental mitigation and protection activities for those vessels.

"These designations underscore our continued efforts to enforce our sanctions against Iran," Secretary of State Antony Blinken said in a statement. "We will not hesitate to take action against those who try to circumvent our sanctions."

Iran nuclear deal

Diplomatic efforts to ease oil sanctions on Iran have taken a back seat as Iran's extraneous demands, continued human rights abuses and support of Russia's military offensive against Ukraine scuttled talks to revive the 2015 Joint Comprehensive Plan of Action.

That deal set restrictions on Iran's nuclear program in exchange for relief from US sanctions, but the Trump administration reimposed sanctions on Iran's oil, petrochemicals, shipping and other sectors in 2018.

Restarting nuclear controls on Iran could have lifted oil sanctions and returned as much as 1 million b/d to the tight global market that has few options for near-term incremental supply.

Colin Kahl, the Pentagon's top policy official, told members of the House Armed Services Committee Feb. 28 that going back to that deal was the preferable solution to constraining Iran's nuclear program but was very unlikely to happen as those talks were put "on ice" after Iran turned down a final offer presented by the EU last summer.

But Iran's nuclear progress has heightened the stakes. "Back in 2018, when the previous administration decided to leave the JCPOA, it would have taken Iran about 12 months to produce one bomb's worth of fissile material," Kahl said. "Now it would take about 12 days."

State spokesman Ned Price told reporters March 1 that the US stood by its commitment to ensure that Iran never acquires a nuclear weapon.

"We continue to believe that the most effective way to do that is through diplomacy," Price said. "Only diplomacy can achieve a durable, permanent solution whereby Iran is never in a position to acquire a nuclear weapon, but we haven't taken any tools off the table."

Height Capital Markets senior policy analyst Benjamin Salisbury said that "the combination of Iran's nuclear developments, support for Russia's war in Ukraine, and crackdown on domestic protests significantly raise the likelihood of a response that disrupts oil markets."

However, he contended that "a prisoner exchange could set a foundation for resumed nuclear talks, potentially focused on a limited reduction in activity rather than a full-fledged return to the JCPOA."

Analysts at Rapidan said that if an exchange of US and Iranian prisoners is successful in March, a "gesture-for-a-gesture" deal could be possible this summer that sees Iran commit to freezing uranium enrichment at 60% and the US in turn unfreezing some Iranian assets.

And if all that falls into place, the Biden administration "could return to the 2021-22 lax-enforcement environment on sanctions, but a formal easing of oil sanctions is not on the table," Rapidan analysts said.