Trump wants to shut off Iran’s oil tap, and may clash with China

After acting in every way to prevent his victory, Iran will still be forced to face US President-elect Donald Trump. A lot has changed since Trump left the Oval Office, especially in the Middle East, but it seems that no change in his policy towards Tehran is expected. According to a report in Wall Street C. Vernell, Trump plans to return the policy of “maximum pressure” with the help of sanctions.

The president-elect not only left the nuclear agreement in 2018, he also imposed sanctions on the Islamic Republic that severely damaged its economy. Contrary to him, Biden aspired to return to the agreement and therefore avoided a significant implementation of the sanctions in general and those on oil in particular, which makes up about 15% of the Iranian product. The result is that, despite the sanctions, the Ayatollahs’ regime “celebrated” from the revenues of the black gold.

Over the past few years, the sanctions against Iran and its oil industry have increased in all its segments: from production, through the petrochemical industry to the fleet of ghost tankers. So, for example, last month the State Secretariat imposed sanctions on six entities involved in the Iranian oil trade. In July 2022, sanctions were imposed on the operators of a complex network of companies in the Gulf countries, which operated to market oil and petrochemical products produced in Iran to countries in the Far East. About four months later, sanctions were added on an oil shipping network that helped the Quds Force and Hezbollah rake in hundreds of millions of dollars in revenue.

The budget of the Revolutionary Guards is guaranteed through oil revenues as a matter of course, therefore damage to the trade in Iran’s black gold means damage to the Revolutionary Guards. As part of the budget for next year established in October, nearly 20% of oil export revenues – about 10 billion dollars – were promised to the Revolutionary Guards. According to “Iran International”. Also, after in this year’s budget the army was promised revenues of 200,000 barrels per day – next year they will enjoy revenues of 430,000 barrels per day.

Methods of concealing the trade

Iran ended the year 2023 with a five-year record in oil exports: about 1.29 million barrels per day. Its main customer is the largest oil importer in the world, China. For oil exports, the Ayatollah regime has gained a lot of experience in recent years in methods to hide the trade with them. More than 300 tankers are registered in foreign countries and constitute a “ghost fleet”, and their movement is carried out while turning off or disrupting the navigation and identification systems and false registration of documents. Other routine moves to obscure the traces include transferring oil from tank to tank, registering a third country as the source of the oil and using complicated networks to transfer funds through various entities and companies.

Chinese customs data indicate, for example, that the volume of oil imports from Malaysia in July was 1.53 million barrels per day – 12 times more than five years ago, when Trump left the nuclear agreement. This is an export volume that is three times greater than the Malaysian production rate. The only reasonable explanation for this is that Iran uses traders in different countries, including Malaysia, to “paint” the oil as local, on the way to China.

In order to entice its customers to buy oil from it despite the sanctions, Iran offers a 15% discount on the oil barrels. This assumption, according to market experts, does not bring the Ayatollah regime into losses because the marginal cost of production in Iran is low compared to other countries.

Closing the barrier on Iranian oil exports may bring Washington not only to a collision course with Tehran, which according to the “New York Times” earns $2 billion a month from oil exports to China (about 5% of all Iranian exports), but also to a significant collision with Beijing Ying. According to information provided by the trade monitoring company “Kepler” to the New York Times, China imports about 15% of its oil from the Islamic Republic.

The fear of Israel had an effect

Already last month, effects of the geopolitical developments on Iranian oil were observed. There was a fear that Israel would attack oil facilities in response to the missile attack on October 1, and tankers were afraid to enter the ports. The result was a drop of 200,000-350,000 barrels per day in Iranian oil exports in October, according to the opposition “Iran International” website.

At Kepler they found that oil loadings dropped from 1.82 million barrels per day to 1.47 million barrels per day in October. At the same time, the shipping monitoring company Vortexa estimated the export of Iranian oil at 1.5 million barrels per day, noting that most of the decrease comes from the first half of the month. The downward trend is clear in October, but nevertheless these are significantly larger volumes compared to the 1.29 million barrels that will be exported per day in 2023. The Iranian production rate is 3.5 million barrels per day, of which, as mentioned, about 1.8 million are directed to export – an export rate that it has not enjoyed since Washington’s decision to leave the nuclear agreement.

The “Economist” estimated that Iran’s revenues from oil amounted to 70 billion dollars last year. In Kepler, they point out that the drop in oil exports last month cost the Ayatollahs’ regime 800 million dollars. If an incident of fear of an Israeli attack resulted in such harm, then a decision by the White House to close the oil “faucet” will have a much greater impact on Iran, which already currently has about 33% of its citizens living below the poverty line.

Oil is on the decline

It is still too early to judge whether Trump’s election as president will cause a jump in the price of oil, since since Tuesday the price of Brent oil, which is considered the benchmark, has generally fallen by about 2% to $73.9 per barrel, while American WTI oil has fallen by about 1.8% to about 70.3 dollars. In general, the price of oil has fluctuated in the past year under the influence of the Iron Swords War, but unlike similar events in the past – the trend is downward. This is even though the market predicted that if the scenario were to materialize in which Israel attacks Iranian oil facilities, the price would cross the $100 per barrel mark – for the first time since Russia’s invasion of Ukraine.

Over the past year, the Brent price has fallen by about 9.4%, in contrast to the oil crisis in 1973, when the Arab countries imposed an oil embargo that led to a fourfold price jump by January 1974. Today, most of the impact on the market comes from the Houthi rebels and the blockade of the Red Sea. These do not harm the availability of the product, because on an international scale Yemen is not a significant player, but affect the supply chains. Thus, a situation has arisen where the shipping line between Europe and the Far East has been extended, at least, by two weeks, the availability of tankers is decreasing – and the price of using them is increasing.

The one who is less affected by this is the largest oil exporter in the world, Saudi Arabia, about 75% of its oil exports last year were sent to the Far East. That line is not affected by the Houthis, because it goes from the east of the kingdom to the Strait of Hormuz, and from there to the east. This is the point where Iran poses a great danger, due to having the authority to pass through the strait, which is a gateway to and from the Persian Gulf. Nearly a third of the world’s oil trade passes through that gate every day. If there is a military or diplomatic escalation that will bring Iran to close it, all oil exports from the Persian Gulf will go wrong – including the Saudi one.

The Dutch ING bank predicts that cutting off Iranian oil exports from the world market will bring the Brent price to more than $90 per barrel next year. On the other hand, a situation in which the 14 million barrels of oil a day that cross the Strait of Hormuz will not be able to exit, could jump the price of a barrel to the $150 area – for the first time since 2008.

Trump accepts the USA as the largest oil producer in the world with 13.4 million barrels per day, which is 22% of the total global production. However, this is also the maximum level of production that its infrastructure allows, so if Tehran decides to use leverage against Washington in the form of closing the Strait of Hormuz – no The outgoing President Biden or the President-elect Trump will have the ability to prevent a decrease in the availability of oil and a spike in energy prices in the world.