MW Trump is putting 'maximum economic pressure' on Iran. What's next for oil?

By Myra P. Saefong

Iran has skirted U.S. sanctions through the use of a 'ghost fleet,' shipping exec says

President Donald Trump's recent decision to reinstate a goal from his first presidency to bring Iran's oil exports to zero has had little impact on crude prices so far, as the market looks to rely on spare capacity among major oil producers and Iran's knack for skirting sanctions.

On Tuesday, Trump signed a presidential memorandum to restore "maximum economic pressure on the government of the Islamic Republic of Iran, denying it all paths to a nuclear weapon, and countering Iran's malign influence abroad." The order calls for the U.S. Secretary of State to modify or rescind existing sanctions waivers and cooperate with the Treasury Secretary to implement a "campaign aimed at driving Iran's oil exports to zero."

The president's decision was "hardly a surprise," Alex Hodes, director of energy-market strategy for StoneX, told MarketWatch. But Trump's goal of reducing Iranian oil exports to zero during his first presidency was "never fully achieved."

A chart of Iran's crude-oil exports from Kpler shows a drop in exports to 149,787 barrels per day in May 2020, from around 2.81 million bpd in May 2018, followed by a gradual climb during President Joe Biden's presidency.

"Trump was really able to limit Iranian crude production and exports in his last stint as president," Matt Smith, lead U.S. analyst at Kpler, told MarketWatch. The Biden administration "let barrels leak onto the market, helping to keep oil prices in check," and Iranian crude exports are currently holding around 1.6 million bpd, near multiyear highs, he said.

That rise was largely due to weaker enforcement of sanctions under Biden, which allowed Iran to export oil more freely, primarily to China, said StoneX's Hodes. "Looking the other way was a political move by the administration as midterms were approaching and inflation was the topic of discussion across America."

Now the status of the market is a different one than in 2021 to 2022, he noted. "There is substantially more slack in the market, which could allow Trump to enforce sanctions more heavily without spiking [oil] prices too high."

It's no secret that Iran has found resourceful ways to avoid the full effect of U.S. sanctions on its oil exports.

Stamatis Tsantanis, chairman and chief executive officer at shipping company Seanergy Maritime Holdings Corp. $(SHIP.UK)$, told MarketWatch that Iran has used hundreds of oil tankers, known as a "ghost fleet," to "covertly sell oil." He said the fleet involves around 470 tanker vessels that, due to their involvement in the Iran trade, are essentially banned from doing business along mainstream routes.

Hodes referred to these vessels as a "shadow fleet" of older tankers that operate outside of normal tracking systems. He added that Iran has conducted ship-to-ship transfers in order to "disguise the origin of crude" before delivering it to buyers.

More than 90% of Iran's oil exports head to China and are mainly purchased by so-called teapot refineries - those that represent "smaller-volume businesses that are not part of one of the large integrated China companies," according to Tsantanis.

"As long as China was willing to allow imports of discounted Iranian oil and the U.S. administration was not enforcing sanctions strictly, this left the door open for the rise in Iran oil exports that has been seen over the past four years," he said.

The Trump administration, however, has already demonstrated a tougher stance. Its latest measures include targeting companies that provide insurance, maintenance and logistical support to the sanctioned "ghost fleet," Tsantanis said. And unlike Biden, Trump is directly pressuring China to cut its imports of Iranian crude and has signaled possible penalties against Chinese firms involved in facilitating these transactions, he said.

Enforcement of the U.S. sanctions on Iran will come down to how much the Trump administration is willing to pressure Iran's oil buyers, said StoneX's Hodes. Oil prices may rise if there are some barrels displaced and, according to StoneX's base case, that could be around 400,000 barrels per day, he said.

Still, Trump's decision on Iran sanctions has done little to shake up the oil markets.

On Wednesday, the day after Trump signed the order directing "maximum pressure" on Iran, U.S. and global benchmark crude futures settled at their lowest prices this year to date. March West Texas Intermediate crude (CL.1) (CLH25) fell $1.67, or 2.3%, to end at $71.03 a barrel on the New York Mercantile Exchange, while April Brent crude (BRN00) (BRNJ25) settled at $74.61 on ICE Futures Europe, down $1.59, or 2.1%.

Members of the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, are "capable of producing higher volumes of oil to make up for any shortfall in the global market due to lower Iranian exports," said Rob Thummel, senior portfolio manager at Tortoise Capital. OPEC+ reaffirmed plans on Feb. 3 to gradually phase out its voluntary oil production cuts of 2.2 million barrels starting on April 1.

U.S. shale technology, meanwhile, has resulted in the U.S. becoming the largest oil producer in the world, Thummel noted.

As of 2023, the U.S. had produced more crude oil than any nation at any time for six years in a row, according to the Energy Information Administration. It produced an average of 12.9 million bpd in 2023, and that climbed to a fresh record of more than 13 million bpd in 2024.

U.S. shale technology "enhances energy security both domestically and globally so the U.S. and the world don't have to be as concerned about a drop in Iranian crude-oil supply," said Thummel. "The U.S. and other countries around the world can quickly respond."

-Myra P. Saefong

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February 06, 2025 06:00 ET (11:00 GMT)

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