Bloomberg: US reluctant to impose sanctions on China, UAE for purchasing Iranian oil

The United States has indicated it will not impose sanctions on Beijing and Dubai for purchasing Iranian oil.

This revelation comes in the wake of new sanctions imposed by the U.S. government on Iran’s oil trade, which have led to a decline in crude prices by more than $5 a barrel, Caliber.Az reports, citing Bloomberg.

The price drop is largely attributed to indications that Israel is likely to refrain from attacking Iran’s oil infrastructure, alleviating one of the market’s significant concerns. Despite this, the decline highlights how traders remain largely unaffected by U.S. actions against major oil-producing adversaries like Iran and Russia.

Market scepticism persists that sanctions will significantly elevate prices, especially as Washington aims to manage fuel costs while balancing relations with China, a primary buyer of Iranian oil.

The October 11 sanctions against Iran allow the U.S. to target any aspect of the Islamic Republic’s oil trade and potentially sanction anyone involved in dealings with it. U.S. Deputy Treasury Secretary Wally Adeyemo stated, “Our goal, and what we made very clear to the Iranians, is that if they continue with their destabilizing activity and their attacks against Israel, we’re going to be prepared to continue to do more.”

However, U.S. officials privately acknowledge a reluctance to target significant Chinese oil buyers and Emirati intermediaries who have facilitated a surge in Iranian oil exports since late 2019, shortly after the Trump administration re-imposed trade restrictions. According to sources familiar with the situation, while the US has the capability to inflict economic harm on Tehran, it has refrained from taking aggressive actions to avoid market volatility and to safeguard broader foreign policy objectives.

Treasury Secretary Janet Yellen denied that the U.S. has eased its stance on Iran, calling the recent sanctions a potential “prelude” to further measures. “We have put in place hundreds and hundreds of sanctions on an ongoing basis against Iran,” Yellen noted. “But it is true that we have recently ramped up our sanctions significantly. I signed an action that allows us to target Iran’s energy sector broadly, and that could be a prelude to a set of steps that would really curtail Iran’s ability to gain revenue from exports.”

Iran's oil exports averaged 1.7 million barrels per day in the third quarter of this year, nearly two-and-a-half times the levels seen in late 2019, according to TankerTrackers.com Inc. This increase has persisted despite concerns about potential Israeli strikes on Iranian oil facilities. U.S. officials have primarily focused on strategies that increase the costs associated with Iran's supply chain while avoiding actions that would outright restrict its exports.

Strategically significant third-party jurisdictions, such as the UAE and China, complicate the U.S. stance. The UAE hosts numerous intermediary firms engaged in oil trade, while approximately 80% of Iran’s daily oil exports are directed to China, often settled in yuan.

The situation mirrors that of Russia, where the U.S. has attempted to balance supply risks with efforts to limit the Kremlin's access to oil revenue. This has led to the implementation of a price cap that prohibits the use of Western ships and services for cargoes sold above certain prices, prompting Moscow to create a shadow fleet to transport its oil without Western assistance.

As the U.S. presidential election approaches, these recent measures against Iran may empower the next administration to impose stricter sanctions. Former President Donald Trump’s “maximum pressure” campaign effectively reduced Iranian oil flows in 2019 following the U.S. withdrawal from the 2015 nuclear deal and the end of waivers allowing some countries to continue buying Iranian oil.

By Khagan Isayev