Iran's oil production at risk of collapse due to Trump sanctions

More than 100 ships tied to Iranian crude trade since 2018 have been sanctioned, Goldman Sachs says

Iranian technicians work at the Kharg oil terminal. Sanctions have raised the price of Iranian crude for China due to tighter shipping capacity and higher freight costs. EPA

Iran's oil production faces a potential collapse of up to 1.2 million barrels per day this year due to tighter US sanctions, putting the country’s exports to its biggest customer China under immense pressure.

US president-elect Donald Trump plans to tighten sanctions on Iran and further limit its oil exports under his “maximum pressure” campaign.

Mr Trump’s inauguration on January 20 will follow months of stricter sanctions enforcement by the Biden US administration, which has targeted several companies and tanker operators in Iran’s “dark fleet” to disrupt Tehran’s ability to raise funds for its nuclear programme and Middle East proxies.

Sanctions have raised the price of Iranian crude for China as a result of tighter shipping capacity and higher freight costs.

Syed Rizvi, energy market analyst at Primary Vision, said under Mr Trump’s maximum pressure sanctions, Iranian production could lose about 1 million bpd to 1.2 million bpd in the second half of 2025.

“I don’t see a significant impact on Iran’s production in [as early as] the second quarter of 2025 as there might be some lag between the implementation of stricter sanctions and a fall in actual production,” he told The National.

Goldman Sachs expects the Opec producer’s output to drop by a modest 300,000 bpd to 3.25 million bpd by the second quarter.

In a research note on Friday, the US investment bank said it expected a continued decline in Tehran’s oil exports, highlighting a substantial increase in the volume of Iranian crude stored on ships and a "relatively stretched" export fleet.

More than 100 vessels linked to Iranian crude trade since 2018 have been sanctioned, representing 60 per cent of Iran’s global exports and 50 per cent of China’s imports in the past three months, Goldman Sachs said.

Energy consultancy FGE has said Mr Trump’s return to the White House could jeopardise up to 1 million bpd of Iran’s production and exports this year, with its base case projecting an output decline of 250,000 bdp to 300,000 bpd starting next month.

“Iranian crude remains the top choice for smaller independent [refiners in China], although the economics are waning. The current tightness and high prices are likely caused by logistical complications, rather than lower exports from Iran,” FGE said.

Chinese imports drop

China's November imports of Iranian crude oil and condensate dropped to a four-month low of 1.31 million bpd, a 524,000-bpd decline from the previous month, maritime data analytics firm Kpler said last month.

Kpler's analysis of 147 tankers carrying Iranian crude revealed significant disruption caused by recent US sanctions, leading to a surge in floating storage, mainly near Malaysia and Singapore.

US officials have previously accused Malaysia of helping Iran evade sanctions by facilitating ship-to-ship transfers and rebranding Iranian oil to obscure its origin, enabling sales mainly to China.

In response to tighter Iranian supply, Chinese refiners are turning to spot cargoes from non-sanctioned sources such as the UAE and West Africa, Kpler said.

With the Assad regime's fall, Iran's 50,000 bpd of oil exports to Syria are likely to be redirected to China, increasing its dependence on Chinese private refiners, it added.

Meanwhile, China's ability to increase imports from Saudi Arabia and Russia could be complicated by Opec supply cuts, some of which extend until 2026, and the possibility of further western sanctions on Moscow.

Despite supply curbs, Saudi Arabia's crude oil exports surged to 6.33 million bpd in December, their highest level in nine months, Bloomberg reported on Sunday, citing tanker-tracking data.

China boosts quota

China has raised its crude import quotas for independent refiners for 2025, providing some hope to oil producers worried about slowing Chinese crude demand.

FGE reported that the latest batch of crude import quotas for non-state refiners and trading firms totalled 192.6 million tonnes, 6.7 million tonnes more than in 2024, with most companies receiving their full allocation for the year.

“Despite this, rising Iranian crude prices due to higher tanker rates and intensified scrutiny may temper demand,” said Dr Umud Shokri, energy strategist and senior visiting fellow at George Mason University. “Some Chinese refiners have already cancelled purchases and tougher sanctions could lead to more Iranian oil being stored in floating facilities,” he told The National.

China’s crude oil demand declined in 2024 amid slower economic growth, rising adoption of electric vehicles and the increasing use of liquefied natural gas in the haulage sector.

While Beijing's recent stimulus measures have sparked investor optimism for a Chinese economic rebound, growing uncertainty looms over the likelihood of heightened trade tension with the incoming Trump administration.

Mr Rizvi said Chinese demand this year will depend on further stimulus created by the government, global economic sentiment and the price of oil, as China has become a "highly price-sensitive" buyer.

The US Energy Information Administration has predicted China’s liquid fuels consumption will increase by 250,000 bpd in 2025, compared with a 90,000-bpd growth last year.

Trump sanctions

Any Trump administration sanctions look set to target Iran’s oil sector with “greater vigour”, shifting from a focus on individual shippers to broader targets, such as financial institutions, oil terminals operators, and refineries linked to Iranian oil trade, Dr Shokri said.

A decline in Iranian production, though expected to be less severe than the 2018–2019 collapse, is compounded by domestic issues, including chronic gas shortages and limited access to foreign capital and technology, he added.

In 2015, Iran reached an agreement with the US and five other nations, known as the Joint Comprehensive Plan of Action, that resulted in the removal of numerous sanctions in return for stringent restrictions on its nuclear programme. In 2018, the Trump administration pulled out of the accord as part of its maximum pressure strategy aimed at isolating Iran economically and politically.

However, sanctions enforcement was relaxed after President Joe Biden assumed office in 2021, which resulted in Iran’s oil production reaching a high of 3.4 million bpd in 2023 from about 2.55 million bpd in 2022.

Iran's domestic economy, already grappling with the severe impact of US sanctions and internal mismanagement, faces a daunting outlook this year.

The International Monetary Fund projected that the country's real GDP would decelerate to 3.3 per cent last year and slow down further to 3.1 per cent in 2025.