[WASHINGTON] US President Donald Trump on Tuesday (Jun 24) appeared to undermine years of US sanctions on Iran, giving its biggest customer, China the green light to carry on buying its oil as he seeks to bolster a ceasefire with Israel.
The announcement on social media, which surprised both oil traders and officials in his own government, could undermine the central element of Washington’s Iran policy under multiple administrations, which have sought to cut the regime’s main source of revenue by making its top export off limits.
“China can now continue to purchase oil from Iran,” the president said on Truth Social, amid a flurry of posts demanding Israel and Iran cease hostilities.
The statement landed only hours after Trump declared the Middle East rivals had agreed to a ceasefire, which got off to a shaky start with early breaches by both sides. It follows massive US airstrikes on several of the Islamic Republic’s nuclear facilities on Sunday, an offensive aimed at stopping Tehran from obtaining an atomic weapon.
Oil prices extended losses on Tuesday after Trump’s comments, with West Texas Intermediate futures sinking 6 per cent to settle near US$64 a barrel. Futures plunged as the threat to crude flows from the Israel-Iran conflict faded.
US Treasury and State department officials handling Iranian oil sanctions were surprised by Trump’s statement and uncertain how to immediately interpret it, according to sources familiar with the situation.
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In the meantime, however, Treasury will continue to strictly enforce related sanctions, said one of the sources, who asked not to be identified given the political and market sensitivity of the issue.
The Treasury Department did not immediately respond to requests for comment, while the State Department referred questions to the White House.
A senior White House official later signalled that sanctions would remain, saying that the president continues to call on China and others to import American oil rather than Iranian, which would be a violation of US sanctions.
The official added that Trump’s post was only intended to highlight that his actions over the past several days ensured that the Strait of Hormuz was not impacted, which the official said would have been devastating for China.
Tammy Bruce, State Department spokeswoman, declined to provide further specifics during a briefing on Tuesday. “I’m not going to get ahead of the president or try to guess what his strategy will be,” she said when asked about the comment. “Things happen quickly and I think we will find out sooner rather than later.”
The apparent shift also comes as the Trump administration seeks to hammer out a new trade framework with China and climb down from a tariff war that saw duties reach levels high enough to cut all trade between the world’s two biggest economies.
The comments appeared to be Trump “throwing a bone” to China and Iran for cooperating in their respective talks with the US, said Mark Malek, chief investment officer at Siebert. “Most of us are thinking that it’s just rhetoric at this point. But it definitely took me by surprise.”
Allowing a specific carve out for China may be an effort by Trump to send positive signals to Beijing as he seeks a new tariff deal, said a source familiar with the president’s thinking, also asking not to be identified.
While the potential shift may ease some legal risks around China’s buying of Iranian oil, it’s unclear what impact the change would have on actual flows.
China, the world’s biggest importer, gets about 14 per cent of its crude from Iran. But that figure is likely higher as some imports are masked as shipments from Malaysia, as well as the United Arab Emirates and Oman, in order to circumvent US sanctions, which Beijing does not recognise.
While China has not officially purchased Iranian barrels since June 2022, third-party data providers and traders signal flows have been resilient despite broad US sanctions. That’s because the Chinese have built a supply chain outside of Western control, which includes dark fleet ships and yuan-denominated payments, supporting imports of more than one million barrels a day.
Iran’s oil, often purchased at a discount, is vital for China’s substantial private refining sector and a crucial source of fuel for its economy, which has struggled under the weight of a slumping property sector.
“The Iranian oil sanctions have been so significant for so long, but also with relatively muted enforcement,” said Daniel Tannebaum, former Treasury official and partner at Oliver Wyman. “It would be premature to think that this policy, which would benefit both China and Iran, would go ahead without a longer-term view of ensuring stability in the region, before just literally opening up the spigots to allow legal trade of Iranian oil by China.”
Trump as recently as last month, insisted all purchases of Iranian oil or petrochemical products “must stop, NOW!” and that buyers would be subject to secondary sanctions and prevented from engaging in any business with the US.
That threat built on previous warnings from his administration. In February, Treasury Secretary Scott Bessent said Washington intended to squeeze Iran’s oil exports to less than 10 per cent of current levels, as it renewed the “maximum pressure” campaign deployed during Trump’s first term.
As part of that effort, the US has sanctioned hundreds of oil tankers for their role in handling Tehran’s petroleum and, absent an easing in those measures, some buyers may still take a more cautious approach.
The White House has also targeted Chinese entities that bought Iranian oil, something that could make other buyers wary. Likewise, secondary sanctions on Iran’s sales remain in place and it’s not clear where the president’s remarks will leave those.
The sanctions were intended to force Iran to voluntarily give up uranium enrichment so that it would never be in a position to obtain a nuclear weapon.
It’s still unclear if US airstrikes over the weekend seriously damaged the country’s nuclear facilities, while the International Atomic Energy Agency still does not know what happened to Tehran’s stockpile of 409 kilogrammes of highly-enriched uranium – potentially enough for 10 nuclear warheads. BLOOMBERG
