As the debate plays out over the damage done to the Iranian nuclear program by US and Israeli strikes, one reality is clear: The country’s booming energy sector, the cash cow of the regime, emerged unscathed.
The numbers do not lie. Iranian oil output reached a 46-year high last year, according to recently released data. If anything, all available information for the first six months suggests this year would see another increase in production.
Every time I hear a US official talk about US oil sanctions on Iran, I cannot help wonder: “What sanctions, exactly?” Increasingly, they exist only on paper while the White House hypes a nonexistent policy of “maximum pressure” on the Iranian oil sector. I only see maximum oil output.
Illustration: Tania Chou
“We have the sanctions on,” US President Donald Trump told Fox News on Sunday, as if the policy was working. “If they can be peaceful, and if they can show us they’re not going to do any more harm, I would take the sanctions off.”
Surely, the Islamic republic wants all sanctions — and not just the ones applied to its energy industry — gone for good, but when it comes to oil, Trump has a lot less leverage than he implies, and Tehran knows it.
The story of how Iran beat US oil sanctions goes back several decades — mixing doses of US realpolitik with Iranian entrepreneurialism and the new geopolitical muscle of China. At times, it reflects how Washington turned a blind eye to obvious violations, preferring instead to keep oil prices down and inflation in check. At other times, it reflects the growth of Tehran and Beijing in sophistication and steadfastness to evade them.
Whatever the reasons, the results are the same. The Islamic republic is earning more petrodollars than many thought possible. Last year, Iranian energy export revenue hit a 12-year high of US$78 billion, up from the US$18 billion in 2020 — a year marred by the COVID-19 pandemic — according to consultants FGE Energy.
The nation’s oil industry has been the subject of on-and-off US sanctions since November 1979, when then-US president Jimmy Carter imposed the first batch in response to the 444-day-long hostage crisis. They were eased in 1981 after the Algiers Accords, which led to the release of the hostages, but reintroduced in 1987 by then-US president Ronald Reagan. They intensified in 1996, with then-US president Bill Clinton signing the Iran-Libya Sanctions Act, and from 2010 onward with a series of new measures, under then-US president Barack Obama.
Throughout, Washington often showed that keeping oil prices low was the priority. For example, the US Department of the Treasury allowed a prominent US oil trader named Oscar Wyatt to buy Iranian oil in 1991 after Iraq invaded Kuwait (at the time, then-Iraqi president Saddam Hussein was seen as larger menace than Iranian Supreme Leader Ali Khamenei).
There is also the evolution of the Iranian petroleum industry itself. Although crude attracts all the attention, over the last 10 years Tehran has emphasized the development of a corner of its oil industry that historically received less, if any, attention in Washington: condensates and natural gas liquids (NGL) such as ethane, butane and propane.
They might fly under the radar, but they do count toward the overall oil output — and generate quite a lot of petrodollars, too. Last year, Iran produced about 4.3 million barrels a day of crude, plus another 725,000 barrels a day of other liquids, for a total of nearly 5.1 million barrels a day. The estimate was published last month by the UK Energy Institute as part of its Statistical Review of World Energy, an annual publication that is considered the industry’s data bible.
Tehran has not pumped more than 5 million barrels a day since 1978, the year before the Islamic Revolution ended the rule Mohammad Reza Pahlavi, the last shah of Iran.
Developing its vast condensate and natural gas liquids riches without foreign help was not easy, but when sanctions stopped European and Asian firms, the Islamic Revolutionary Guards Corps (IRGC), a powerful Iranian military organization that controls a wide range of local companies, stepped up. Over the past decade, Khatam al-Anbiya, a construction conglomerate managed by the IRGC, has built key installations needed to process condensate and NGLs into usable products.
The wager has paid off. Today, “NGLs are Iran’s most lucrative exports after crude oil and natural gas,” the Iranian Ministry of Petroleum said in April. Propane brought last year US$3.6 billion alone; with another US$2.2 billion from butane.
“Investing in NGL production is not just an economic opportunity, but a strategic necessity to increase foreign currency revenue,” it added.
Having secured a new and growing oil stream under the nose of Washington, Tehran turned its attention to secure its crude exports. Beijing built a largely sanctions-proofed supply chain that includes oil tankers, ship-to-ship transfers and the use of entities that operate outside the US dollar system.
It did help that former US president Joe Biden turned a blind eye to what Tehran and Beijing were up to. The White House, worried about keeping oil prices down as it hit Russia with energy sanctions, concluded that achieving its objective of harming Moscow over its 2022 invasion of Ukraine required a laissez-faire approach to the Sino-Iranian oil trade. Today, China buys 90 percent of the oil Iran exports.
The 12-day war between Israel and Iran — with the later involvement of the US — has not changed the situation on the ground for the Iranian oil industry. In limited airstrikes, Israel damaged only a couple of Iranian petroleum assets that were quickly repaired. The White House quietly intervened to stop the war spilling into the energy sector. It would come in handy for Tehran during the reconstruction.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He is coauthor of The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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