(Bloomberg) -- Donald Trump could blow a $30 billion hole in Iran’s economy should he return to a maximum pressure campaign on Tehran.
Over the past four years, sanctions evasion and more relaxed US enforcement have allowed the Middle Eastern nation to boost oil exports by about 1 million barrels a day, with most of the supply going to China, according to Bloomberg’s tanker tracking data and estimates by commercial and government organizations. But that could change quickly.
The incoming president’s key advisers are looking at a big sanctions package that hits major players in Iran’s oil industry, which could come as early as February, people familiar with the plan said this month. Cutting off that revenue — equivalent to about 7% of Iran’s annual GDP — would further strain the finances of a country already dealing with massive power shortages, wobbling industries and a plunging currency.
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While it’s not yet clear what action Trump may take on Iran after he’s sworn in Monday, any move will have implications for the oil market. The outgoing Biden administration imposed aggressive new sanctions on Russia, and a loss of supply from Iran runs the risk of tightening the market and likely boosting crude prices that have risen about 7% this year.
During the Biden administration’s four-year term, Iran sold $140 billion of crude to China, accounting for more than 80% of its total sales, according to the advocacy group United Against a Nuclear Iran. That would put total Iranian oil revenue at roughly $175 billion over the period, or $44 billion a year.
If Trump targets Iran’s crude exports and succeeds in rolling back the 1 million barrel-a-day increase, it would slash exports by about two-thirds and could cost Iran roughly $30 billion a year, based on the UANI calculations. The income and potential losses could vary based on the discounts the country offers to make its crude attractive for buyers.
Trump’s previous administration had succeeded in slashing Iran’s oil exports to an average of about 400,000 barrels a day in 2019 and 2020, from more than 2 million a day during much of 2018, according to tanker tracking data compiled by Bloomberg. Estimates by consultancy Kpler, United Against a Nuclear Iran and the US Energy Information Administration paint a similar picture.
Oil to China
Under the Biden administration, that jumped back to about 1.6 million barrels a day, after secret diplomacy between the two countries brought them closer on a range of issues from oil revenue to prisoner exchanges. Almost all that additional oil headed to China.
Restricting barrels to China would be no easy task. The origin of most Iranian oil is disguised by the time it reaches China, a Bloomberg investigation showed, while the Chinese buyers and banks dealing with such cargoes are usually outside the US financial system and are difficult to sanction.
Also read: The Clandestine Oil Shipping Hub Funneling Iran’s Crude to China
Still, Bob McNally, a former White House energy official and founder of consultant Rapidan Group, believes Iran’s exports to China will be down by about 1 million barrels a day by the summer.
That would bring the Iranian economy under some stress. The country’s currency has plummeted and the lack of investments has left the power grid creaking. Despite holding one of the world’s biggest natural gas reserves, there’s not enough fuel production to meet winter demand. It’s partly been responsible for the long blackouts currently hitting the economy.
