US slaps new sanctions on Iranian oil shadow fleet

The exports fell from over 1.8 million barrels per day (mb/d) in September to 1.5 mb/d in October, and further to 1.3 mb/d in November.

It comes amid a gradual shutdown of small independent Chinese refineries, known as "teapots," which are Iran's main oil buyers in China, and have been critical for Iranian oil sales amid US sanctions that target third parties for buying Iranian oil.

China accounts for 95% of Iran's oil exports, but it does not purchase the oil directly. Instead, small independent refineries buy Iranian oil after it is blended with crude from other countries, ensuring it is not labeled as Iranian by Chinese customs, in order to comply with sanctions against Iran.

China has opted to gradually phase out teapot refineries due to their low efficiency and significant environmental impact. They convert a large portion of crude oil into pollutants like fuel oil, which contributes heavily to air pollution.

In September, a Chinese court declared two refineries, Zhenghe and Huaxing, bankrupt. Reuters also reported in early November that teapots are now operating at half capacity.

For years, these refineries relied on 15-30% discounts from Iran, Russia and Venezuela to stay afloat. However, Iran reduced these discounts to $5-7 per barrel in October and $3-5 per barrel last month, according to industry sources who spoke with Iran International.

These refineries typically delay payments for Iranian oil by at least three months, raising concerns about their ability to settle debts amid looming bankruptcies. Meanwhile, Russia has also scaled back discounts to Chinese buyers as it secures a stable customer base, possibly prompting Iran to reevaluate its competitive pricing strategy.

Shrinking market opportunities in China

Homayoun Falakshahi, a senior analyst at Kpler, told Iran International that China’s oil market is saturated, and demand is unlikely to grow further. He emphasized that even if the teapots avoid bankruptcy, China will gradually phase them out due to their environmental impact.

He said Iran has delivered only 1.33 mb/d of crude oil to China in November, 500,000 b/d less than the September level.

China, as the world’s largest emitter of greenhouse gases, is simultaneously one of the most vulnerable countries to climate change. It faces severe air pollution in major cities and is heavily investing in renewable energy. According to the International Energy Agency, China is expected to account for 60% of global renewable energy capacity additions by 2030.

Moreover, half of the cars sold in China in October were electric. State-run PetroChina predicts that China’s diesel demand peaked in 2023 and will decline by 5% annually in 2024 as LNG-fueled trucks replace diesel trucks. Gasoline demand is also declining.

The impact of Trump’s return

Before the Trump administration imposed sanctions in 2018, Iran exported 2.5 million barrels per day (mb/d) of oil. However, this figure plummeted to 350,000 barrels per day by the end of Trump's term in 2020. Under Joe Biden's more relaxed enforcement of sanctions, exports steadily increased year-over-year, reaching 1.6 mb/d by 2024.

The prospect of Trump reinstating his “maximum pressure” sanctions presents significant challenges for both Iran and China. New orders placed by Chinese refineries will take time to reach their ports, with less than two months remaining before Trump assumes office.

Circumventing sanctions—such as rebranding Iranian oil as Iraqi, Omani, or Malaysian—requires over a month of complex logistical operations. Additionally, Iran allows Chinese refineries up to three months to settle payments in yuan or through barter trade, further complicating deals going forward.

Although an immediate drop to 2020 export levels is unlikely, the $750 billion trade relationship between China and the US make further declines in exports highly probable during Trump’s presidency.

According to Vortexa tanker tracking data, about 60% of very large crude carriers involved in smuggling Iranian oil to China remain unsanctioned. Imposing US sanctions on these vessels could significantly increase the cost and complexity of bypassing restrictions.

The EU resolution called on the Islamic Republic to end systematic discrimination against women and girls, including mandatory hijab laws, and to repeal the Hijab and Chastity Law and other gender-discriminatory legislation.

The resolution also highlighted rights violations, including “the murders of Mahsa Amini, Armita Geravand,” and over 811 executions in the past year, many targeting political prisoners.

It urged member states to extend sanctions under the EU Global Human Rights Sanctions Regime to include Iranian officials responsible for these violations. It also calls for the designation of the Iran’s Revolutionary Guards (IRGC) as a terrorist organization, citing the group’s role in suppressing dissent and its involvement in international acts of violence.

German MEP Hannah Neumann, in a plenary debate at the European Parliament, highlighted the case of Iranian student Ahoo Daryaie, who removed her clothing in protest after security forces allegedly assaulted her at Tehran's Islamic Azad University over her hijab. Authorities later labeled Daryaie as mentally ill, sparking outrage amongst activists and human rights advocates.

"The only one who is sick here is the Islamic regime. Sick with paranoia, terrified of women who dare to show their hair or sing a song. And the only thing that Iranian women are suffering from is being sick of this regime. Ahoo Daryaie is not a patient. She's a remedy. A symbol of courage and resistance against repression, like so many others, whose names we don't even know," Neumann said.

Earlier this month, an Iranian state Islamic body announced plans to open a clinic in Tehran to treat women defying mandatory hijab laws, in what activists see as another instance of authorities labeling dissent as a mental health issue.

Neumann criticized these actions, describing them as "repression disguised as care," and drew parallels to historical misogyny.

The EU resolution comes a day after Mohammad Bagher Ghalibaf, speaker of Iran’s parliament announced that the Hijab and Chastity law would be officially enacted next month.

The latest sanctions package is designed to address the use of chemical weapons on Ukraine's frontlines but also extends to those implicated in the transfer of arms to Russia for deployment in the conflict, according to the New Zealand Foreign Ministry.

The sanctions target seven individuals and five entities, with six of the individuals being Iranian nationals. These include Ali Jafarabadi, Head of Iran's Space Command within the Islamic Revolutionary Guard Corps Aerospace Force (IRGC-ASF), and Hamid Reza Sharifi Tehrani, a member of the Board of Directors of Qods Aviation Industries.

Others named are Mohammad Reza Mohammadi, Mohammad Sadegh Heidari Mousa, and Mohsen Asadi, all members of the Board of Paravar Pars Company. Additionally, Seyed Hamzeh Ghalandari, Director General for International Relations of Iran’s Ministry of Defence and Armed Forces Logistics (MODAFL), is also listed.

“Transfers of Iranian weaponry facilitates Russia’s illegal war of aggression against Ukraine. New Zealand condemns those who are providing support,” Foreign Minister Winston Peters said on Thursday.

These sanctions come amid intensified Russian drone offensives in Ukraine, where Iranian-made Shahed suicide drones have caused significant damage to infrastructure and residential areas.

“The enemy launched a record number of Shahed attack UAVs and unidentified drones,” Ukraine's air force said Tuesday in a statement reported by Reuters.

Known for their low cost and destructive capability, these drones have been extensively deployed to target Ukrainian energy facilities and civilian areas. Ukrainian authorities have described the latest wave of attacks as the most extensive use of Shahed drones to date.

International criticism of Iran’s role in the conflict has grown. Earlier this week, the G7 and the European Union issued a joint statement condemning Iran’s arms transfers to Russia and its missile activities in the Middle East, highlighting the broader destabilizing impact of Tehran’s actions.

Similarly, in September, the G7 condemned Iran, declaring, "Iran must immediately cease all support to Russia's illegal and unjustifiable war against Ukraine and halt such transfers of ballistic missiles, UAVs, and related technology." The statement underscored the broader implications of these actions, identifying them as a direct threat to Ukraine, European stability, and global security.

New Zealand’s sanctions align with similar moves by other nations, reinforcing global efforts to address Iran’s military collaboration with Russia and its impact on Ukraine’s sovereignty and regional stability.

The remarks were rare criticism by Iranian officialdom of the budding cooperation between a deeply isolated Islamic Republic and nuclear-armed economic powerhouse China.

Sanctions have left Tehran heavily dependent on China, the world's top oil importer, forcing it to navigate costly logistical hurdles to evade US-led restrictions.

“These sanctions have trapped us in a nineteenth century colonial trap, leaving the government no choice but to manage the economy at significantly higher costs than normal,” said Hojatollah Mirzaei, head of the Research Center at the Iran Chamber of Commerce.

Around 92 percent of Iranian oil goes to China, often at discounts at around 30 percent, according to Mirzaei, who bemoaned the fact that his country has little say over the transactions.

“China dictates how payments are made,” he said. “They might say, ‘use this money to buy electric buses at the price we set.’ Then Tehran’s municipality proudly announces, ‘We brought you electric buses.’”

He underlined the economic strains during a budget review session on Wednesday.

“More than half the value of each barrel is consumed in circumventing sanctions,” Mirzaei said, in apparent reference to the added expense of shipping and insuring the covert oil exports.

China has continued to purchase Iranian oil, despite US sanctions. The oil is transferred using "ghost fleets", vessels with switched off transponders and concealed ownership.

"The change you're going to see is more focus on Iran," Mike Waltz, Trump's nominee to be US national security advisor, told CNBC in an interview.

"Maximum pressure, not only will it help stability in the Middle East, but it'll help stability in the Russia-Ukraine theater as well, as Iran provides ballistic missiles and literally thousands and thousands of drones that are going into that theater," he added.

The Republican congressman from Florida shares a strong pro-Israel and anti-Tehran stance with many of the incoming president's other top foreign policy picks.

In his last term, President Trump withdrew the United States from an international deal over Iran's disputed nuclear program and reimposed what his administration called a maximum pressure campaign against the Islamic Republic.

By ordering the assassination of a top Iranian military commander, Qassem Soleimani in Baghdad in 2020, Trump earned the lasting enmity of Iran's ruling military and clerical establishment which has repeatedly vowed revenge.

US investigators have alleged that the Islamic Revolutionary Guard Corps sought to enlist an Afghan national to assassinate Trump before the US election, in charges Iran denies.

The reimposition of harsh sanctions enforcement which had eased somewhat under President Joe Biden may herald a new era of confrontation between the United States in Iran as conflict between US ally Israel and armed Iranian fighters rages on.

Waltz said Iran was an obstacle to peace in the Middle East and that oil sales to China were a key lifeline that needs to be cut off.

"As long as they are flushed with cash, the Middle East is just never going to have peace. Iran doesn't want the Middle East to be in peace," he said.

"China buys 90% of Iran's illicit oil, in roughly 2017, 2018, they were exporting 4 million barrels per day. By the end of Trump's first administration, it was down to around 300,000 to 400,000," he added. "So I think we'll be having some conversations with China about their purchases."