INSIGHTi

Iran’s Petroleum Exports to China and U.S.
Sanctions
Updated February 28, 2024
The October 2023 attacks on Israel by Hamas, a foreign terrorist organization (FTO) with financial ties to
Iran, have increased Congress’ concern with Iran’s ability to raise revenue in international markets. Iran’s
petroleum exports reportedly reached new heights in 2023, with most of the increase attributed to trade
with China. The evasive techniques used to obscure Iranian petroleum exports complicate efforts to
identify Iran’s trade patterns, and use sanctions effectively in furtherance of U.S. foreign policy.
Background: U.S. Sanctions
U.S. efforts to limit Iranian income from petroleum and petroleum products (hereinafter petroleum) via
sanctions go back decades. Section 1245 of the FY2012 National Defense Authorization Act (P.L. 112-81)
(22 U.S.C. § 8513a) directed the President to block from the U.S. financial system foreign financial
institutions that conduct transactions with Iran’s Central Bank or other designated Iranian banks whose
assets are blocked under the provision, except for foreign central banks that do not engage in transactions
related to Iranian petroleum. The statute excepts from these secondary sanctions foreign financial
institutions in countries determined to be significantly reducing their purchases of Iranian petroleum
(President Trump approved the last such exception in 2018). In 2018, President Trump abrogated U.S.
participation in the Joint Comprehensive Plan of Action (JCPOA), and issued Executive Order 13846, to
reinstate those sanctions that had been terminated in meeting requirements of the JCPOA. The Secretary
of State has authority to designate for sanctions any person determined to have engaged in a transaction
related to the “purchase, acquisition, sale, transport, or marketing” of Iranian petroleum. The United
States has imposed sanctions on dozens of entities for their role in the illicit shipment of Iranian
petroleum to Asia under E.O. 13846.
Iran’s Petroleum Exports to China
U.S. secondary sanctions are intended to impose financial or other costs to dissuade foreign persons (third
parties) from participating in activities that U.S. persons cannot engage in—all with the intention of
denying revenue to the primary malign actor. With China’s increasing imports of Iranian petroleum,
Chinese buyers may have concluded that the economic benefits of continuing to buy Iranian petroleum
exceed the risks of potential U.S. sanctions for several reasons.
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Iranian petroleum is often sold below prevailing market prices: Iran has reportedly sold its petroleum at a
discount compared to Persian Gulf or price-capped Russian suppliers to entice foreign traders and buyers
(though in January 2024 Iran reportedly slowed exports to China in a bid to obtain a higher price).
Moreover, most reported Chinese buyers of Iranian petroleum are small, semi-independent refineries
known as “teapots.” According to one advocacy group, these refineries are “both hard to uncover and not
exposed to the U.S. financial system,” constraining the effect of U.S. sanctions. Iran reportedly exported
nearly 1.3 million barrels of petroleum a day in 2023, the highest annual level recorded by one industry
tracker since 2018. Another source estimates that nearly all Iranian petroleum exports go to China (Figure
1).
Figure 1. Iranian Petroleum Exports

Source: United Against Nuclear Iran, data compiled using multiple sources. Data available here.
Notes: “Rest of World” includes some exports to unknown destinations, which may include exports that eventually
reached China.
In light of reports of increased Iranian petroleum exports, and the resulting accrual of billions in revenue
for the Iranian government in accounts held abroad, some Members of Congress have accused the Biden
Administration of “not enforcing petroleum sanctions.” All sanctions related to Iranian petroleum remain
in place. U.S.-Iran diplomatic engagement in mid-2023 reportedly included, along with de-escalatory
steps related to Iran’s nuclear program and other issues, an Iranian expectation that the United States
would not attempt to seize Iranian petroleum at sea. Some observers have speculated that competing
global interests, a desire not to escalate tensions with China, or the pursuit of lower petroleum prices may
have also informed the Biden Administration’s Iran sanctions policy in a way that de-prioritized the
enforcement of sanctions.
Biden Administration officials have rejected those charges, pointing to the Administration’s designation of
hundreds of entities for sanctions for their involvement in Iran-related activities. In February 2024, the
Justice Department unsealed three federal cases related to the Iranian petroleum trafficking, including one
related to the sale of Iranian petroleum to “government-affiliated buyers in China” and another charging a
director of a Chinese oil refinery. Later that month, the Department of the Treasury’s Office of Foreign
Assets Control (OFAC) invoked authorities established in the wake of the September 11, 2001, terrorist
attacks to designate for sanctions a Hong Kong-registered shipping company for its role in “having
materially assisted, sponsored, or provided financial, material, or technological support for, or goods or
services to or in support of” a shipment from Iran to China valued at more than $100 million.

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The Biden Administration also forfeited and sold nearly a million barrels of Iranian petroleum from the
tanker Suez Rajan, in what the Justice Department called “the first-ever criminal resolution involving a
company that violated sanctions” related to trade in Iranian petroleum.
The Suez Rajan case illustrates the complexities in enforcing U.S. sanctions against shipments of Iranian
petroleum. The Suez Rajan was owned by a U.S.-based entity, which likely helped enable its seizure.
Without a direct connection to U.S. jurisdiction, the United States may face more limited options. U.S.
efforts in mid-2022 to confiscate the cargo of a tanker carrying Iranian petroleum that had docked in
Greece were blocked by Greek courts. During the Trump Administration, U.S. officials reportedly e-
mailed the captains of tankers carrying Iranian petroleum to offer rewards for them to pilot their vessels to
countries that would impound them for the United States. The law of the sea limits U.S. jurisdiction to
enforce its sanctions laws at sea by interdicting vessels suspected of smuggling. In January 2024, Iranian
forces reportedly seized the re-named Suez Rajan in retaliation for the U.S. confiscation.
Congressional Action
Some Members of Congress have called on the Biden Administration to enforce sanctions on Iranian
petroleum exports to China, including by designating additional Chinese entities violating sanctions. It is
unclear what impact, if any, such designations might have on Iran-China petroleum trade, global
petroleum markets generally, U.S.-China relations, or other dynamics. Hamas’s October attack on Israel
has increased attention to the issue. In November 2023, the House passed H.R. 3774—Stop Harboring
Iranian Petroleum (SHIP) Act—which would mandate sanctions on entities involved in Iranian-petroleum
related transactions, including refineries, and direct the Administration to submit annual reports on Iranian
petroleum exports. Another bill, H.R. 5923—Iran-China Energy Sanctions Act of 2023—seeks to impose
sanctions on correspondent accounts of Chinese banks that conduct transactions involving Iranian
petroleum.

Author Information

Clayton Thomas, Coordinator
Jennifer K. Elsea
Specialist in Middle Eastern Affairs
Legislative Attorney


Dianne E. Rennack

Specialist in Foreign Policy Legislation




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IN12267 · VERSION 3 · UPDATED

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