The Middle East has witnessed a surge in tensions, raising fears of a wider conflict. At the crux of these rising tensions lies Iran, the primary driver behind various terrorist aggressions in the region. To address this escalating threat, it is imperative that we shift our focus to deterring and punishing the perpetrators rather than making dangerous concessions. In this regard, one strategy that has been overlooked by many is the effective use of oil as leverage over Iran. By intensifying sanctions on Iranian oil, we can significantly contribute to preserving peace in the region.
The Middle East is currently experiencing a wave of attacks orchestrated by Iran-backed terrorist groups. Hezbollah, supported by Iran, is launching missiles and drones at Israel, while simultaneously threatening to invade from Lebanon. In Yemen, missiles fired by Iran-backed Houthis were intercepted by U.S. warships. The targeting of U.S. airbases in Iraq by Katyusha rockets and drones, alongside ongoing provocations by Islamic Jihad and Hamas in Gaza, are further indications of Iran’s growing belligerence. U.S. Secretary of State Antony Blinken has acknowledged the likelihood of these attacks escalating, posing a direct threat to U.S. personnel in the region.
These various terrorist groups share a common factor—their funding and backing from Iran. Military experts suggest that Iran is likely coordinating these multi-faceted attacks. However, we possess more leverage over Iran than we realize, with their oil sales acting as a critical choke point for their economy. Reports estimate that oil exports account for up to 70% of Iranian government revenues, making it an ideal area for imposing stronger sanctions. While Iranian oil production has surged to near-record levels, surpassing 3.5 million barrels per day, it’s imperative to recognize that this represents a vulnerability for Iran rather than a strength.
Although technically under ongoing U.S. economic sanctions, Iran has managed to export a significant amount of oil. Lax enforcement and sanctions-evading tactics, such as the establishment of a “shadow fleet” of tankers facilitated by Chinese purchasers, have contributed to Iran’s ability to bypass restrictions. However, based on our experience advising the U.S. Treasury Department on strengthening sanctions on Russian oil, we firmly believe that effective measures can be implemented to curb Iranian oil production.
To that end, we propose the following tactics:
1. Strengthen enforcement and publicly punish rampant sanctions evaders, including the consideration of secondary sanctions on Chinese buyers.
2. Engage in diplomatic efforts with China to dissuade the largest buyers of Iranian oil.
3. Introduce a price cap on Iranian oil, following the model set by MIT Professor Catherine Wolfram’s proposal for Russian oil. A lower cap price would further restrict Iran’s profit margins.
4. Utilize strategic choke points, particularly the Strait of Hormuz, through which 90% of Iran’s oil exports pass.
5. Impose sanctions on European ship sellers contributing to Iran’s shadow fleet.
6. Extend sanctions to include Iranian oil field service companies, as recommended by energy expert Craig Kennedy.
By implementing these measures, Iranian oil production can be effectively choked, thereby reducing the funds available to the country to finance its terrorist proxies. However, this endeavor is not without its challenges. President Biden’s concerns regarding the impact of strengthened sanctions on global oil prices have been a significant obstacle. It is important to dispel these fears by emphasizing that Iranian oil represents just a fraction of overall Middle East oil production, and alternative sources of oil can compensate for any decline in Iranian exports.
Saudi Arabia, in particular, possesses ample spare capacity, having voluntarily cut its daily oil production. By restoring its production to full capacity, Saudi Arabia alone can contribute approximately 4 million barrels per day to the global marketplace. Moreover, given Saudi Arabia’s commitments in the past to backstop any loss in Iranian production, by doing so again, it can seize market share while undermining Iran’s influence.
Although concerns exist regarding potential repercussions on Saudi Arabia’s relationship with Israel amidst inflamed domestic populations, it is crucial to recognize the long-term strategic and economic benefits for Saudi Arabia in taking action. While Saudi may oppose a price cap due to concerns about a buyer’s cartel challenging OPEC’s power as a seller’s cartel, the detrimental impact on Iran outweighs any short-term concerns.
In light of the escalating tensions and the possibility of a wider conflict or attacks on U.S. forces in the region, it is imperative that stronger deterrence measures be implemented against Iran. By strengthening sanctions on Iranian oil, we can cut off the windfall profits funding Iran and its terrorist proxies, deter Iranian aggression, and ultimately de-escalate tensions in the Middle East.
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