• China
• Russia
• Iran
• Agathe Demarais

June 26, 2025, 12:01 PM View Comments ()

Satellite imagery often yields intriguing findings. After Israel’s surprise attack against Iran on June 13, Iranian oil firms rushed to export as much oil as possible—lifting the country’s output to a likely seven-year high of 3.5 million barrels per day. If Iranian oil firms rushed to pump crude in preparation for a possible tightening of U.S. sanctions, then they were in for a treat: On June 24, U.S. President Donald Trump posted on Truth Social that China could “now continue to purchase oil from Iran,” leaving experts guessing whether he had reversed Washington’s long-standing policy of putting maximum pressure on Tehran through the imposition of secondary sanctions on buyers of Iranian crude. No one knows what, if anything, Trump’s social media post meant. Yet if he did lift sanctions on Tehran’s oil exports, the ripple effects of his U-turn could be felt far beyond Iran—in China, Russia, and even the United States.

Confusion often reigns around secondary sanctions. These measures are designed to punish firms (such as obscure shipping companies and Chinese oil refineries) that are willing to do business with the primary targets of U.S. sanctions (such as Iranian oil producers). However, there is a catch: Secondary sanctions, even if enacted, are rarely imposed in practice. Proving such transactions can be tricky, time-consuming, or simply not worth the effort. The power of such measures mostly lies with their dissuasive effect, where the mere risk of falling under the secondary sanctions is usually enough to deter firms from doing business with the primary sanctions target.

Perhaps for this reason—and because targeting oil shipping is often akin to whack-a-mole, where sanctioned tankers are quickly replaced with new ones—the United States often turns a blind eye on the so-called dark fleet of tankers shipping Iran’s oil under the radar. This is not a Trump twist: More or less ignoring covert Iranian oil shipments has been informal policy since the Biden administration.

Iran hawks may be relieved to hear that Tehran is unlikely to derive much additional benefit from Trump’s decision to make the informal U.S. toleration of Iran’s oil exports an (almost) official policy. Granted, Iran could export its oil to China, which absorbs more than 90 percent of Iranian crude exports, without having to consent a 8 percent to 10 percent risk discount, with the amount varying depending on the type of crude and the respective bargaining power of each Chinese refiner.

Yet ditching the discount would not be enough to fuel an Iranian fiscal bonanza: At most, Tehran can hope to gain $3 billion to $4 billion per year in extra revenues. (This ballpark estimate assumes annual Iranian exports of 1.5 million barrels per day at a price of $66/barrel—the average oil price that the International Energy Agency and U.S. bank JP Morgan have penciled in in their forecasts for 2025—instead of $60 after a 10 percent discount.)

The Iranian regime would certainly welcome a few billion dollars in extra revenues to, say, rebuild its nuclear program. However, the poor state of Iran’s oil sector means that the sudden windfall would only be a temporary Band-Aid. After decades of underinvestment and curtailed access to Western technology, Iranian oil firms would struggle to boost production without massive inflows of foreign capital and know-how—both of which will remain in short supply absent a formal relaxation of U.S. sanctions.

Experience from the 2015 nuclear deal also suggests that Western firms would adopt a wait-and-see approach before going back to Iran for fear of a sanctions snapback. What makes things particularly critical for Iran is that many of its oil fields are mature and thus declining in output, requiring constant investment just to continue pumping.

For Iran’s principal customer, Trump’s U-turn may—perhaps counterintuitively—not be welcome news. Iran officially supplies nearly 15 percent of China’s crude imports, but the real figure is probably higher because a significant portion of Iranian oil shipments to China goes through Malaysia, Oman, or the United Arab Emirates using opaque financial schemes. On other occasions, crude is simply transferred from one tanker to another at sea and then declared to be coming from somewhere else—all in a bid to escape U.S. scrutiny.

Not all Chinese refiners import Iranian oil, though; Chinese state-owned refining companies have long stayed out of this trade for fear of falling afoul of Washington. By contrast, Iranian oil is critical for China’s so-called teapot refiners—small-scale, independent refineries that have massively invested in the specialized equipment needed to refine heavy, sulfur-rich Iranian oil.

For China’s teapot refiners, Trump’s change of heart could be a death sentence: Since 2022, many of these businesses have switched to discounted Iranian crude in order to stay afloat despite dwindling profit margins and heightened competition from state-owned refining giants. With teapot refiners providing around a quarter of China’s diesel, gasoline, and other refined products, it is hard to imagine that Beijing could rejoice at the idea of seeing many of these firms go bust and stop providing refined oil staples for the Chinese domestic market.

Rumor has it that Beijing has long wanted to curtail teapot refineries in order to lessen the competition for state-owned ones. This idea doesn’t quite pass the smell test: When the Chinese leadership really wants to clamp down on a sector, it has a solid track record of swiftly managing to do so.

Russia is the final U.S. adversary that Trump’s U-turn may not please. For Moscow, the prospect of a war involving Iran was not entirely bad news; the spike in oil prices that usually accompanies Middle East tensions could have helped the Kremlin plug its growing fiscal hole at a time when the price in rubles of a barrel of Russian oil recently hit a two-year low, slashing the Kremlin’s oil tax revenues by 32 percent in May compared to the same month in 2024. If a relaxation of U.S. sanctions pushes more Iranian oil on an already oversupplied global market, then the likely resulting drop in crude prices would give credence to recent declarations from Kremlin officials that the Russian economy is teetering on the brink of a recession.

It is hard to find coherence in U.S. policies these days. Yet as the U.S. economy increasingly looks like Trump Enterprises writ large, the assumption that Trump prioritizes low oil prices above everything else may not be far-fetched. This theory would not only explain his favorable comment on Iranian oil flows but also help to explain why U.S. (and possibly Israeli) strikes did not target Iran’s oil production infrastructure.

However, Trump may want to be careful what he wishes for. U.S. shale oil producers would be hit hard if crude prices drop below $60 per barrel. Some U.S. oil companies are probably hard at work outlining why the White House needs to reverse course and double down on Iran sanctions, highlighting the only certainty with Trump: No one knows what is coming, and everything could change on a whim.

Even as Trump appears to have given them a green light, Iranian oil producers are probably well-advised to continue pumping as much crude as they can—while they can.