Kashik Sen

Iran’s Oil Production Growth: Geopolitical and Economic Implications

In a geopolitical environment characterized by escalating U.S. sanctions on Iran, Iran’s oil production reached new heights in 2023, according to consultants, shipping data, and a source with knowledge of the matter, adding to the global supply at a time when other producers are restricting their output.

The Statistical Review of World Energy has affirmed that despite the continued pressure of US sanctions on the Iranian petroleum sector, Iranian crude oil production increased significantly in 2022.  “Despite tough financial restrictions, Iran managed to increase crude oil output by about 130,000 bpd in 2022 to an average 2.55 million bpd, and by 350,000 bpd since the beginning of this year,” the IEA said in its latest report dubbed Oil 2023.

The Republic recently unveiled a budget for the 2023 financial year that is 40% bigger than the previous year’s budget, relying on projected exports of 1.4 million barrels of crude per day at an average price of $85 (€78.3) a barrel, state news agency IRNA reported. 

As far as the stats are concerned, Fuel production in Iranian refineries rose by 2.2% year on year in 2022 to 2.397 million bpd while oil refining capacity in the country rose 2.3% to 2.67 million bpd over the same period. In February 2023, the succeeding year, Iran’s crude oil production was reported at 2,571,000 barrels per day. This represents an increase from the previous January 2023 total of 2,554,000 Barrel/Day th. It is essential to observe that the Production data is updated monthly, with an average of 3,627.500 Barrel/Day th from January 2002 to February 2023 and 254 observations. Apart from that, Crude Oil Production in Iran again, increased to 2679 BBL/D/1K in May from 2619 BBL/D/1K in April of 2023 showing an ever increasing trend in the Iranian oil for the first half of 2023 as well

Chinese Interests in Iran

Crude oil exports from Iran have reached their greatest level in years, with China importing the majority of the commodity at a discount. China’s record Iranian oil purchases are in line with its national interests, as it relies on Iran to meet its oil demands in the midst of supply chain disruptions caused by the conflict between Russia and Ukraine.

According to a number of analysts, including SVB Energy International, and the International Energy Agency, exports have reached their greatest level since then. The overwhelming majority is unsurprisingly flowing to China, which imports Oil from the Islamic Republic at much cheaper costs than its other oil-trading counterparts.

According to Vortexa, China’s December 2022 imports of Iranian oil reached a new record of 1.2 million bpd, up 130% from a year ago. The press department of China’s Foreign Ministry in response to the comments from the west stated, “The legitimate and reasonable cooperation between China and Iran under the international legal framework deserves respect and protection,” without addressing the questions raised on China’s record Iranian oil purchases. China’s national interests currently align with Iran due to supply chain disruptions caused by the Russia-Ukraine conflict, and it relies heavily on the Islamic nation to satisfy its enormous Oil demands.

The US-Iran Angle

In the past, the United States has opposed Iran’s crude exports and imposed sanctions to restrain the country’s nuclear ambitions. Recent sanctions have strained bilateral relations and hampered the possibility of reviving the nuclear agreement. Between the two countries

The United States has historically held a strong stance on crude oil exports from Iran. Prior to the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear deal, the U.S. had imposed strict sanctions on Iran’s oil sector to curb its nuclear ambitions. These sanctions significantly limited Iran’s ability to export oil.

However, in recent years, there have been changes in the U.S. approach. The JCPOA, reached in 2015, aimed to limit Iran’s nuclear program in exchange for sanctions relief, including the lifting of certain restrictions on Iranian oil exports. The agreement was supported by the U.S. government under the Obama administration.

Following this in 2018, former U.S. President Donald Trump withdrew from a 2015 nuclear agreement and reimposed sanctions aimed at limiting Tehran’s oil exports and the associated revenue to Iran’s government. Since then, Tehran’s oil exports have been restricted. This in large ways affected relations among the two nations which were thoroughly represented by Iran’s seventh president Hassan Rouhani.

The United States, recently, imposed sanctions on companies accused of transporting or selling Iranian oil or petrochemicals in violation of U.S. regulations, which included two China-based companies as well. These sanctions are part of a U.S. government effort to curb oil smuggling from Iran, and strained relations between the Islamic Republic and the West have, to a large extent, further stalled efforts to revive the 2015 Iran nuclear deal.

The Future of Iranian Oil Exports Amid Tightening Western Sanctions

European powers, including the United Kingdom, are anticipated to violate the Iran nuclear agreement by failing to rescind sanctions on Tehran’s missile programme. Amidst Tehran’s uranium enrichment and fraught US-Iran relations, uncertainty surrounds the agreement.

The United Kingdom and other European powers are anticipated to announce their intention to violate the 2015 Iran nuclear deal for the first time when they confirm they will not lift sanctions on Tehran’s missile programme as required by the accord in October. It is important to note that these developments take place at a time when there is uncertainty over the 2015 JCPOA deal between the US and Iran.

Uncertainty surrounds Tehran’s response now that it is attempting to produce enriched uranium of weapons-grade purity, and the United States hopes to profit from such a situation, as Washington finds itself in a very precarious position for further bilateral negotiations with the Islamic Nation.  John Bolton, a former national security adviser for the United States under President Trump, stated, “The only way to alter the situation in Iran is to cut the regime’s lifelines and let the Iranian people speak for themselves. The nuclear agreement was terrible when it was made, and it will never improve.

Hostility towards the same, as mentioned above is portrayed deeply by other European leaders including UK prime minister Lizz Truss who recently accused Iran of breaching sanctions and making nuclear weapons portraying the rigidness that the West is issuing on The Islamic Republic.

About the Author
Kashik Sen resident of Noida (India) is recent undergraduate from Thapar University, Punjab (India). He holds keen interest in International relations and Economics with a specific interest in International Trade . He'll be pursuing his Master's Degree in Diplomacy Studies from University of Haifa in Israel.