Iran's Energy Sector: A Long History of Sanctions and Instability
Israel launched airstrikes on Iran Friday, targeting nuclear facilities, ballistic missile factories, and senior military commanders. The operation, which Israeli officials warned could be 'prolonged,' is intended to prevent Tehran from developing nuclear weapons.
Iran's National Oil Refining and Distribution Company confirmed that its oil refining and storage facilities were not damaged in the attacks. Similarly, the Abadan Oil Refining Company announced it was operating at full capacity with no service disruptions.
Iran is the third-largest oil producer in OPEC, pumping approximately 3.3 million barrels per day, about 3% of global output.
Sanctions and OPEC Role
Iran's oil production peaked in the 1970s, reaching a record 6 million barrels per day in 1974, more than 10% of global supply at the time, according to OPEC data.
The first US sanctions were imposed on Tehran in 1979, and Iran has since remained under recurring waves of American and European restrictions. In 2018, President Donald Trump withdrew from the nuclear deal and reimposed strict sanctions, sending Iran's oil exports plummeting—sometimes to near zero.
Under President Joe Biden, however, exports began to climb again. Analysts say enforcement has been less aggressive, and Iran has increasingly succeeded in evading restrictions. It's also important to note that Iran is exempt from OPEC's production quotas.
In recent months, Iranian oil exports have surged to around 1.8 million barrels per day—the highest since 2018, fueled by strong demand from China. Beijing does not recognize unilateral sanctions against its trade partners. Private Chinese refineries remain the main buyers of Iranian crude, despite some being targeted by recent US Treasury sanctions. So far, these measures have had limited impact on the flow of Iranian oil to China.
Iran continues to skirt sanctions using tactics like ship-to-ship transfers and by concealing tanker locations.
Production and Infrastructure
Energy consultancy FGE reports that Iran refines around 2.6 million barrels per day of crude and condensates, while exporting an equivalent amount that includes crude, condensates, and refined products. Iran also produces 34 billion cubic feet of natural gas daily - about 7% of global production - all of which is consumed domestically.
Most of Iran's oil and gas infrastructure is concentrated in the southwest: oil fields in Khuzestan, gas in Bushehr, and condensates from the massive South Pars field. About 90% of crude exports pass through Kharg Island.
While OPEC members theoretically have the capacity to offset a drop in Iranian supply, many are already operating near their limits, placing pressure on the group's spare production capacity.
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