Iran calls for united OPEC response to US sanctions threats

Iranian President Masoud Pezeshkian Feb. 5 called for OPEC to coordinate a response to US threats to increase sanctions pressure on Iran, during a meeting with OPEC Secretary General Haitham al-Ghais.

"I believe if the OPEC members act united and aligned, the US will not be able to impose sanctions and pressure on one member," Pezeshkian said during the meeting, president.ir reported.

US President Donald Trump Feb. 4 sent a memo to key cabinet members directing them to increase sanctions pressure on Iran and to drive its oil exports – including those to China – down to zero.

"Today I took action to restore our maximum pressure policy against the Iranian regime and we will once again enforce the most aggressive possible sanctions, drive Iranian oil exports to zero and diminish the regime's capacity to fund terror throughout the region and throughout the world," Trump said Feb. 4 at a press conference with Israel's Prime Minister Benjamin Netanyahu.

Trump's sanctions threats come after he publicly lobbied Saudi Arabia and OPEC to pump more crude to drive oil prices down.

OPEC confirmed the meeting with Pezeshkian in a statement but did not expand on the possibility of a coordinated action. Some OPEC delegates said that the group has yet to discuss any response to Iran sanctions.

"We haven't discussed that within OPEC," one delegate said.

"I'm not aware of any progress or discussions regarding Iranian exports within OPEC at this stage," another said.

Ghais said during the meeting that Iran-Saudi rapprochement has strengthened the organization in the market, according to an Iranian government statement.

"We have tried to strengthen cooperation among member countries as members of a family in pursuit of collective interests; strengthening this spirit of cooperation is very important for the future of member countries," Ghais said.

During his first term, Trump pursued a maximum-pressure campaign that drove Iranian crude output to as low as 2 million b/d.

Iran produced 3.22 million b/d of crude in December, according to the latest Platts OPEC+ Survey from Commodity Insights.

Since 2022, Western countries have focused sanctions pressure on Russia in response to its invasion of Ukraine. This has led other sanctions targets Iran and Venezuela – which are exempt from quotas under the OPEC+ crude production agreement — to increase output by a combined almost 900,000 b/d.

Crude futures were initially bullish on Trump's comments Feb. 4, but prices were lower Feb. 5 with NYMEX front-month crude trading down $1.23 at $71.47/b at 1550 GMT.

Sanctions impact

After Trump reimposed sanctions on Iranian oil exports during his first term, Iran's oil exports dropped from 2.3 million b/d in 2028 to 1.1 million b/d in 2019 and 585,900 b/d in 2020.

However, the country's overseas shipments gradually recovered under the Biden administration to more than 1.7 million b/d in 2024.

This time around the impact on export volumes and oil prices could depend on how China and Middle East oil producers respond, said Jim Burkhard, vice president & head of research for oil markets, energy and mobility at S&P Global Commodity Insights.

"China is not fond of unilateral US sanctions, so how China responds is wrapped up in the broader US-China relationship," Burkhard said. "The Middle East Gulf producers have a plan to increase production already, so if a cut in Iranian export volumes materializes and prices rise — still a big 'if' — then they may be willing to increase output in line with their already existing plan."

The massive increase in sanctions imposed on oil producers and suppliers in recent years has also led to the development of many sanctions workarounds.

"A lot of sanctions-busting capacity has built up over the last few years—ghost tankers, shell-company ownership, alt financing, etc," said Mark Finley, a fellow in energy and global oil at the Baker Institute for Public Policy at Rice University.

Trump expressed reservations about use of the memo's tools when signing it Feb. 4. "This is one that I'm torn about," Trump said about the memo. "I am going to sign it but hopefully we are not going to have to use it very much. We will see whether or not we can arrange or work out a deal with Iran," he said.

This ambivalence, along with Trump's concerns about higher oil prices and worries about further escalation in the Middle East, and the extensive illicit networks, suggest that a moderate amount of Iranian oil is likely to come offline in 2025, said Rachel Ziemba, a senior advisor with political risk consultancy Horizon Engage.

"I do not think that the US is ready to take the blunt actions needed to reduce Iranian exports to zero or near zero," Ziemba said. "A few hundred thousand barrels in losses is more likely," she said.

But others expect a bigger impact. "The administration is serious about setting back the Iranian nuclear program, and barring significant Iranian concessions that lead to a quick deal, we expect a broadside of sanctions against China and Iran will disrupt ~1 million b/d," said Fernando Ferreira, director of geopolitical risk service at Rapidan Energy Group.

Beijing has already made a down payment on reductions, with imports from Iran down around 400,000 b/d between October and December, and more decreases are expected when Washington threatens to impose secondary sanctions on major Chinese oil terminals, Ferreira said.

The administration already has the ability to sanction foreign refineries and ports that transact in Iranian oil. "We will see whether Chinese ports and refineries, which are the primary recipients and consumers of Iranian oil, are targeted, and whether this becomes an item for negotiation along with tariffs.

While the language in the memo is about imposing maximum pressure on Iran, the initial rounds of sanctions may target Iraq instead because some of the language in the memorandum seems to target the waivers that allow Iraq to pay Iran for gas and electricity transfers, Ferreira said.

Sanctions memo

Trump Feb. 4 directed the Secretary of Treasury to launch a sanctions and enforcement campaign that denies Iran and its proxies access to revenue, according to a memo sent to members of his cabinet. This includes issuing new guidance to the shipping, insurance, and port sectors warning of the risks of violating US sanctions on Iran.

China's Shandong Port Group, whose terminals are often used by Chinese independent refineries that rely on Iranian crude, blacklisted ships sanctioned by the US in early January. The move came amid speculation that China could start to turn away from the discounted barrels, with the incoming US administration promising a tough trade stance on China and tighter sanctions on Iran.

The memo called for a diplomatic campaign to isolate Iran globally and ensure that the Iraqi financial system is not used by Iran, and that Gulf countries are not used as sanctions evasion transshipment points.

Other measures include working within the United Nations to snapback international sanctions and hold Iran accountable for breaching the Nuclear Non-Proliferation Treaty.

Domestically, it called for enforcing technology and component export controls and prosecution of US-based financial networks sponsored by Iran.

Trump argued that he ultimately wants a nuclear peace deal with Iran. "Reports that the United States, working in conjunction with Israel, is going to blow Iran to smithereens, are greatly exaggerated," he said in the Feb. 5 Truth Social post.

"I would much prefer a verified nuclear peace agreement, which will let Iran peacefully grow and prosper," Trump said in the post. "We should start working on it immediately," he said.

Trump signed the Iran sanctions memo the same day that he suggested that the US would take ownership of the Gaza strip and redevelop it.

In response, Saudi Arabia's Foreign Ministry issued a statement saying Saudi Arabia would not establish diplomatic relations with Israel without the creation of a Palestinian state.