In recent months, Iran has produced record levels of oil, even in the face of United States sanctions on its energy exports and the bombings conducted by Israel on Tehran. Iran has forged strong partnerships with China and other world powers to circumvent sanctions and continue exporting its crude, a trend that is expected to continue into 2026. However, the recent military intervention that the U.S. carried out in Venezuela could undermine this growth by making trade partners more wary of purchasing U.S.-sanctioned crude.
Iran continues to be a major oil producer. However, following several years of sanctions on its energy industry, it does not hold the influence it once did in the global energy industry. Washington reinstated sanctions on Iran in 2018, during President Trump’s first term in office. Since commencing his second term in January last year, Trump has introduced several new rounds of sanctions on Iranian oil.
Iran has the world’s fourth-largest proven oil reserves, with around 9 percent of the global total, coming only behind Venezuela, Saudi Arabia, and Canada. It also has the second-largest proven natural gas reserves, with 17 percent of the global share, and is the third-largest crude producer and fourth-largest exporter within OPEC.
At its peak in 1974, Iran was producing over 6 million bpd of crude. However, years of war, ongoing conflict, and sanctions have diminished its ability to produce such high quantities of oil. However, despite the ongoing sanctions, Iran has gradually built up its output once again, from around 2.9 million bpd in 2019 to between 3.2 and 4 million bpd in 2024, depending on estimates.
A combination of lax sanctions enforcement by the United States and persistent efforts by Iran to circumvent sanctions has helped the Middle Eastern country to gradually become a major exporter of crude once again, supported greatly by its strong trade relationship with the world’s largest oil importer, China.
China has become the primary purchaser of oil from Iran, with Iranian crude contributing around 13.6 percent of China’s oil purchases in the first half of 2025. China buys around 90 percent of Iran’s shipped oil, and it purchased an average of around 1.38 million bpd in the first half of last year, according to Kpler data. Despite the sanctions on Iranian energy, Tehran’s crude has attracted Chinese buyers thanks to its discount rates of up to $7 to $8 a barrel below global benchmarks. Much like Russia, Iran is offering its energy at a lower cost than the benchmarks due to the complications involved with buying and transporting the fuel.
Chinese independent refiners known as teapots, many of which are in Shandong province, have become the principal buyers of Iranian crude, while China’s state-owned oil companies avoid purchasing from Iran due to the sanctions. However, Teapots contribute around a quarter of China’s refinery capacity. In December, China’s Teapots increased their purchase of Iranian oil held in bonded storage and on tankers that were idling offshore, following the implementation of new import quotas in November.
Since coming into power last year, President Trump has implemented penalties on three Chinese independent refiners who had continued to circumvent U.S. sanctions and import Iranian crude, which has since encouraged more refiners to stop the practice. However, Beijing continues to reject unilateral sanctions on Iran’s energy and defends its trade with Iran as legitimate.
Despite higher levels of oil exports in recent years, Iran’s economy continues to suffer. A former senior Iranian oil official stated, “Even if export volumes increase, the key problem is the repatriation of revenues, which faces numerous obstacles. This lack of oil revenue repatriation, despite higher export volumes, puts Iran’s economy at risk of bankruptcy.”
Iran’s currency has collapsed, and the country was facing a headline rate of inflation of 42.2% in December. Meanwhile, the government was forced to increase gasoline prices for certain vehicles due to unsustainable subsidies. This has spurred widespread protests across Iran.
The military intervention conducted by the U.S. in Venezuela, on 3rd January, which included the capture and extraction of President Maduro and his wife, has led many to question whether the United States might intervene in Iran. The unilateral U.S. intervention in Venezuela has created greater geopolitical uncertainty, with Trump saying that U.S. military action could soon be coming to Colombia and Mexico. However, Iranian officials have warned that if the U.S. intervenes in Iran’s protests, U.S. troops may be targeted.
Venezuela, another major oil power, also has U.S. sanctions in place restricting its energy trade. Both China and Iran have circumvented these sanctions in recent years to buy Venezuelan crude. The recent military intervention will, therefore, likely lead to a shift in oil trade in 2026. Chinese refiners may also be encouraged to decrease their reliance on Iranian crude in the coming months due to greater geopolitical uncertainty, although this has yet to be seen.
By Felicity Bradstock for Oilprice.com
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