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Fear of High Gasoline Prices May Deter Biden From Toughening Sanctions on Iran

The Biden Administration is unlikely to attempt to dramatically curtail Iranian oil exports after Iran’s attack on Israel, due to concerns about higher oil and gasoline prices in an election year and an unwillingness to further harm U.S.-China relations as Beijing is Iran’s key remaining oil customer, analysts have told Reuters.

The U.S. toughening the sanctions enforcement against Iranian oil exports was expected by analysts after Iran launched drones on Israel this weekend. Most investment banks and analysts do not see a major escalation in the Middle East that would directly hamper oil production and exports. But some expect tougher U.S. sanction enforcement against Iran’s oil exports.     

On Monday, the U.S. House of Representatives passed the Iran-China Energy Sanctions Act by a vote of 383-11. The bill expands sanctions to cover Chinese financial institutions that buy petroleum products from Iran.

The bill proposes to “impose restrictions on correspondent and payable-through accounts in the United States with respect to Chinese financial institutions that conduct transactions involving the purchase of petroleum or petroleum products from Iran.”

However, considering that most of Iran’s oil goes to China and that removing further barrels from the market would lead to higher oil prices, the Biden Administration could opt not to ramp up enforcement of the sanctions, analysts say.

“I would not expect the administration to tighten enforcement in response to Iran's missile and drone attacks against Israel over the weekend, mainly for concerns (that) could lead to increases in oil prices,” Kimberly Donovan, a sanctions and anti-money laundering expert at the Atlantic Council, told Reuters.

Another anxiety about a clampdown on Iranian oil sales could be concerns about encroaching on China’s oil imports. China has been a major buyer of Iranian crude as it has brushed off all Western sanctions on Iranian, Russian, or Venezuelan oil exports so far. The Chinese teapots, the independent refiners, are estimated to be buying 80% of all Iranian crude oil exports. 

“I'd expect to see a gesture in the direction of (imposing) economic consequences on Iran, but I don't expect the White House — or any future White House — to be able to completely turn off the spigot of Iranian oil,” Jon Alterman, a Middle East analyst at the Center for Strategic and International Studies, told Reuters.

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By Tsvetana Paraskova for Oilprice.com

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