Last-ditch diplomatic efforts to reach a deal on Iran's nuclear activities failed, triggering the snapback of UN sanctions on Tehran over the weekend. The move will add pressure to Iran's struggling economy, but its impact on the energy sector and trade is likely to be limited.
The E3 countries — Germany, France and the UK — formally gave notice late last month that they would reinstate UN Security Council sanctions on Iran over alleged non-compliance with its nuclear obligations within 30 days, unless Tehran made "serious diplomatic efforts" to resolve the issue, including restarting talks.
Iran and the UN nuclear watchdog, the IAEA, agreed to resume monitoring at all Iranian nuclear sites, including those hit by Israeli and US strikes in June. Iran also sent a new proposal to the E3 in a bid to delay the snapback deadline.
But the E3 were ultimately unmoved and triggered the snapback sanctions on 27 September.
The measure reimposed six UN resolutions that include an arms embargo and a ban on ballistic missile technologies. But critically, none explicitly target energy.
Iran's oil minister Mohsen Paknejad highlighted this point last week.
"If you read the provisions of snapback, there is no discussion directly related to the sale of oil, but rather restrictions in other areas like commercial, financial, or maritime transportation," he said. "If snapback is reactivated, yes, that may cause some hardships. But we will implement our own countermeasures in due course."
Paknejad also noted that Iran's oil and energy trade already faces "so many severe restrictions" from US sanctions reinstated in 2018, that "in practice, snapback should not add much to the restrictions already in place".
The Iranian oil minister's message was clear — snapback will be a nuisance, but little more.
Rhetoric or reality?
Such dismissive messaging is typical of Iranian officials during hardship and aligns with the leadership's stance on snapback. Normally, these comments are aimed at domestic audiences to downplay what is to come. But in this case, Iran watchers and sanctions analysts broadly agree that the impact on energy trade should be minimal.
"I see a limited economic impact, especially when it comes to energy," says political risk consultancy Horizon Engage senior adviser Rachel Ziemba. "This is due to the limited scope of the [returning] UN sanctions, the extent of existing US sanctions, and the breadth of the illicit trading relations."
Despite sanctions in place since 2018, Iran is currently exporting around 1.5mn b/d of crude, according to Kpler. Although well below the 2.3mn b/d it exported pre-sanctions, this is more than triple the volumes shipped in 2020 and 2021.
China's role in Iran's export revival provides Tehran with added security, given Beijing's opposition — along with Moscow — to the E3 push to reinstate snapback sanctions.
"China is both the largest end-user of Iranian fuel, and home to many of the intermediaries who trade in it. It also sells Iran equipment, and is a P5+1 veto holder," Ziemba says, referring to the group of countries that signed the Iran nuclear deal on 2015. "China is unlikely to support the snapback, or significantly reduce its illicit energy trade if Iran maintains discounts," she says.
One area to watch, according to Gregory Brew, senior analyst at US consultancy Eurasia Group, is a provision in the UN sanctions that allows the US and other UN member states more scope to board or interdict vessels suspected of carrying nuclear or missile components, or other sanctioned materials.
"A broad reading of these sanctions could suggest that oil that is being moved by entities linked to the Islamic Revolutionary Guard Corps [IRGC] would fall under the authority of snapback," Brew says.
This could, in theory, allow the US to approach countries such as Malaysia, Singapore or China — where many ship-to-ship transfers involving Iranian oil take place — and oblige them as members of the UN to enforce the sanctions if they know Iranian oil is passing through their waters.
Whether this leads to more interdictions depends on co-operation from these countries and the resources available to enforce them.
"The US Navy can only be in so many places at once," Brew says.
Beyond oil
While the immediate impact on energy exports is likely to be limited, the broader context — continued confrontation between Iran and the West — is important, Ziemba says.
"Snapback could also prompt some EU states, the UK and likely other developed economies to also reimpose some of their broader economic sanctions on Iran that were suspended [along with the UN sanctions] back in 2015," she says.
The EU on Monday agreed to reimpose the sanctions it suspended a decade ago as part of the Iran niclear deal. The administration of US president Donald Trump is also expected to press ahead with its pressure strategy against Tehran.
"The administration's position now is more sanctions that pressure Iran are good," Brew says. "Snapback is likely to be followed by additional US sanctions, and even action to curb Iraqi imports of Iranian gas."
Iraq imports around 1.2 GW/d of electricity and 40mn ft³/d (412mn m³/yr) of gas from Iran under agreements signed in the late 2010s and early 2020s. These continued post-2018 US sanctions via waivers, but further confrontation could see those waivers revoked — affecting both Baghdad and Tehran.
"The waiver for Iraqi gas imports has usually weighed heavily on the US to keep the waiver in place, given the importance of Iranian gas to meeting Iraqi energy needs," Brew says. "But so long as Iran and the US stay in a state of confrontation, I see US sanctions on Iranian gas as inevitable under this administration."
The Trump administration removed the waiver on Iraq's electricity imports but allowed Iranian gas flows to continue. Removing the gas waiver would hit Baghdad as much, if not more, than Tehran.
