Economic Insights: Strategic Developments
The administration of U.S. President Donald Trump is actively evaluating a strategy to intercept and inspect Iranian oil tankers in international waters, leveraging an international agreement designed to curb the proliferation of weapons of mass destruction.
Trump has committed to reinstating the “maximum pressure” campaign aimed at economically isolating Iran and diminishing its oil exports to zero, in order to prevent the nation from acquiring nuclear capabilities.
In this context, Trump has implemented two new rounds of sanctions during the initial weeks of his second term, targeting not only companies but also the so-called shadow fleet—obsolete oil tankers operating without Western insurance while transporting crude oil from sanctioned nations.
These sanctions echo the more limited measures taken by the prior administration under President Joe Biden, during which Iran managed to amplify its oil exports via intricate smuggling networks.
Sources indicate that Trump administration officials are exploring mechanisms to halt and search vessels navigating critical transit points, such as the Strait of Malacca and other vital maritime passages.
Delays in crude oil delivery to refineries are expected as a result of these actions, with potential reputational and financial penalties for participants in these supply chains.
As one source noted, “It’s not necessary to seize ships or apprehend individuals to instill a deterrent effect that makes this trade not worth the risk.” The uncertainty introduced by delayed deliveries disrupts the illegal trade networks.
The U.S. administration is considering the possibility of conducting inspections at sea under the auspices of the Proliferation Security Initiative, which was established in 2003 and aims to impede trafficking in weapons of mass destruction.
This initiative, led by the United States, has been endorsed by over 100 governments.
According to one source, this approach could empower foreign governments to target Iranian oil shipments upon Washington’s request, effectively delaying delivery operations and harming the supply chains crucial for Tehran’s revenue generation.
Discussions regarding maritime inspections have reportedly reached the National Security Council, which is responsible for policy formulation within the White House.
Whether the U.S. has preliminary agreements with countries that are part of the security initiative to gauge their willingness to cooperate with this proposal remains uncertain.
John Bolton, the former lead negotiator for the initiative, stated that utilizing this framework to impede Tehran’s oil exports “would be entirely justified.” He emphasized that the sale of oil clearly provides revenue for the Iranian government to fund proliferation activities and support terrorism.
On March 2, Iranian President Masoud Bouchakian informed Parliament that Trump had once again imposed sanctions on numerous vessels, generating ambiguity concerning the delivery of oil and gas shipments.
In light of past encounters, it is anticipated that attempts to detain Iranian oil shipments may provoke reactions from Tehran. The U.S. previously attempted to intercept two Iranian oil shipments in 2023 during the Biden administration, prompting Iran to detain foreign vessels—including one chartered by Chevron—which resulted in escalating crude oil prices.
Ben Cahill, an energy analyst at the Energy and Environmental Systems Center at the University of Texas, noted that the current decline in oil prices could provide Trump with greater latitude to disrupt Iranian oil flows, including the implementation of sanctions on tanker companies and vessel detentions.
“If oil prices remain below $75 per barrel, the White House will have a wider range of sanctions that could impact supplies from Iran and other countries. Implementing such measures becomes significantly more challenging at prices around $92 per barrel,” he commented.
Cahill continued, expressing that a firm U.S. stance could potentially decrease Iranian exports by approximately 750,000 barrels per day in the short term. However, the longer the sanctions are in place, the less effective they may become, as Tehran and its buyers find methods to circumvent them.
Moreover, an increase in oil exports from the Kurdistan Region of Iraq could help offset any decline in Iranian exports. The U.S. has reportedly urged Iraq to resume oil exports from Kurdistan; failure to comply could result in sanctions comparable to those imposed on Iran.
Despite the sanctions introduced in recent years, the U.S. Energy Information Administration estimates that Iran’s oil exports generated around $53 billion in revenue in 2023, a slight decrease from $54 billion in the previous year, largely due to trade relations with China.
Iran relies heavily on its oil exports to China for necessary revenue. Similarly, Russia, which faces its own sanctions and restrictions, is increasingly targeting crude exports to China and India.
In the past several months, Finland and other European nations have expressed concerns over the environmental risks posed by ships navigating close to their shores, particularly regarding potential oil spills.
While European countries have discussed searching vessels carrying Russian oil, with little action taken, the discussion surrounding inspections of ships transporting Iranian oil remains largely untouched.
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