Assessing the short- and long-term consequences of the US withdrawal from the Joint Comprehensive Plan of Action (JCPOA) for Iranian energy is crucial. In the short term, the impact will be rather modest in terms of oil exports. Iran may even stand to benefit from higher revenues, as seen in how crude prices have surged in past weeks on the back of geopolitical tensions. Nonetheless, in the long term, the US withdrawal will substantially muddy the outlook for Iranian energy.

On May 8, US President Donald Trump announced that the United States will be “instituting the highest level of economic sanction” and signed a memorandum to “begin reinstating” nuclear-related penalties against Iran. Meanwhile, the US Treasury Department’s Office of Foreign Assets Control (OFAC) noted that importers of Iranian oil will be given a 180-day wind-down period. By then, they would need to “significantly” reduce their purchases from Tehran should they wish to continue importing Iranian oil under an OFAC license afterward.

Between 2010 and 2015, Iran’s energy sector suffered tremendously from international sanctions, which forced all European companies to leave the country and caused a collapse in oil exports. The present situation differs markedly.

For instance, it is still unclear whether the United States has a comprehensive sanctions strategy. Prior to the JCPOA, under the Barack Obama administration, US secondary sanctions were underpinned by a comprehensive diplomatic effort that actively brought several third countries on board. Without an inclusive strategy harmonizing and directing the activities of the White House, the State and Treasury departments — including OFAC — enforcement of US secondary sanctions will be significantly weakened. This is especially the case as it will be much more difficult for the United States to bring allies and others on board this time.