Sanctions succeed not only through legal design or enforcement rigor, but also through alignment with the physical realities of energy trade. As global energy systems shift toward digitalisation, financial decentralisation, and renewable integration, the future effectiveness of sanctions will increasingly hinge on the technical and infrastructural characteristics of targeted commodities, Daniyal Meshkin Ranjbar writes.
Iran’s energy sector under sanctions has demonstrated a striking contradiction that challenges prevailing assumptions about the effectiveness of international economic pressure. Analysts have often argued that Iran’s natural gas trade, which is tied to regional pipelines and benefits from repeated US waivers, is more resilient than its oil sector, which faces near-total embargoes and aggressive maritime interdiction. Export data between 2018 and 2024, however, tell a different story. Iranian crude oil exports, which had collapsed after the re-imposition of US sanctions in 2018, steadily recovered according to OPEC reports: from 404 thousand barrels per day in 2020, volumes rose to 763,000 in 2021, 901,000 in 2022, 1,323,000 in 2023, and 1,566,000 in 2024. Gas exports, by contrast, peaked at nearly 18.8 billion cubic meters in 2022 but fell to 12.9 billion in 2023 and then contracted dramatically, to only 9 billion in 2024. The very sector assumed to be insulated by pipeline interdependence proved more vulnerable, while the sector assumed to be crippled by sanctions found routes to recovery.
Understanding this paradox requires one to distinguish between sanction design and sanction enforcement, and between the structural characteristics of oil and gas markets. Oil is globally fungible, with highly liquid spot and futures markets. Even when specific barrels are sanctioned, they can be blended, rebranded, and rerouted to willing buyers. Gas, by contrast, is infrastructure-bound. Pipeline gas is visible, metered, and dependent on bilateral contracts. Unlike an oil tanker, which can change its flag, destination, and ownership mid-voyage, a pipeline delivery cannot be disguised. Sanctions that appear weaker on paper may thus exert greater bite if the sanctioned commodity cannot exploit global markets and maritime flexibility.
The legal foundation of US energy sanctions against Iran rests on three primary instruments. The Iran Freedom and Counter-Proliferation Act (IFCA) of 2012 added a layer by prohibiting foreign financial institutions from clearing payments related to Iran’s energy sector. For gas, this meant that banks processing payments for exports risked exclusion from the US financial system. In practice, the US Treasury has accommodated Iraq’s dependence on Iranian energy by granting renewable 120-to-180-day waivers since 2018. These waivers allowed Baghdad to import gas but restricted payments to dinar accounts at the Trade Bank of Iraq, which Iran could only use under US-approved conditions.
The Countering America’s Adversaries Through Sanctions Act (CAATSA), passed in 2017, extended restrictions by penalising investments and services that contribute to Iran’s development of petroleum resources. Section 1245 directly implicated gas infrastructure, rendering any foreign participation in pipeline projects sanctionable. This clause effectively froze international investment in Iran’s planned gas export expansion, particularly the Iran–Pakistan pipeline and LNG development projects. However, the law also granted waiver authority, which Washington repeatedly exercised for Iraq.
Executive Order 13846, issued in August 2018 following the US withdrawal from the Joint Comprehensive Plan of Action, reinstated sanctions lifted under the nuclear deal. It targeted “petroleum, petroleum products, and petrochemicals,” with natural gas explicitly encompassed within the broad definition of petroleum products.
Crucially, the order reintroduced secondary sanctions: foreign firms engaging in “significant transactions” with Iran’s energy sector could lose access to US financial markets. The vagueness of “significant” provided discretion, leading to selective enforcement.
On the European side, Council Regulation (EU) No 267/2012 imposed a ban on imports of crude oil, natural gas, petrochemicals, and petroleum products. The most severe measures targeted oil: the EU imposed a full embargo on Iranian crude imports and banned shipping insurance, devastating Iran’s access to European markets. Natural gas, however, was never subject to a comprehensive EU ban, mainly because Europe did not import significant volumes directly. Turkey, a key consumer of Iranian gas, therefore continued purchases largely undisturbed. In legal design, sanctions appeared more hostile to oil than gas. Yet enforcement reversed that expectation: oil moved into clandestine but viable channels, while gas flows–despite legal loopholes–became hostage to waiver politics and bilateral disputes.
Iran’s mitigation strategies in oil and gas diverged accordingly. In the oil sector, Tehran invested in a vast evasion infrastructure. A “grey fleet” of aging tankers, many reflagged under Panama, Liberia, or the Marshall Islands, enabled shipments that obscured their Iranian origin. Ships conducted frequent ship-to-ship transfers in international waters, switched off AIS transponders, and used false bills of lading. Much of the crude was directed to China, where refiners benefited from discounted barrels while Beijing provided political cover against US pressure. Payments were settled outside the dollar system, often in yuan or dirhams, and sometimes in barter arrangements exchanging oil for consumer goods or investment projects. These mechanisms not only maintained flows but also created a resilient, semi-legal ecosystem of trade that expanded over time.
Gas diplomacy lacked such flexibility. Exports to Iraq, which accounts for the largest share, depended on US waiver renewals. When the United States delayed or conditioned waivers, Baghdad built up arrears, and Tehran cut supply in retaliation, as occurred in 2023 and 2024. On the other hand, Turkey, Iran’s second-largest gas customer, began diversifying its portfolio through increased imports from Russia, Azerbaijan, and LNG markets. According to the Natural Gas Market 2023 Sector Report of Turkey, Iran’s share in Turkey’s yearly imports in 2014 was 18.13%, and in 2023 was 10.71%. In 2014 and 2023, the numbers for Russia were 54.76% and 24.27%; for Azerbaijan it was 12.33% and 20.32%. As Ankara’s dependence declined, so did Iran’s leverage.
Smaller arrangements with Armenia, involving swaps of gas for electricity, and with Azerbaijan, involving trilateral swap deals with Turkmenistan, proved strategically useful but quantitatively insufficient. Iran’s attempt to expand southward through the Iran–Pakistan pipeline illustrates the structural problem: Tehran completed its own section, but Islamabad, under US and Saudi pressure, delayed construction indefinitely. Unlike oil, where Iran could reach China across open seas, gas diplomacy tied Tehran to neighbours which were highly sensitive to US influence.
The result was not only declining gas volumes but also diminishing revenue stability. Oil exports, even at discounted prices, generated increasing hard currency inflows: $23 billion in 2020, $38 billion in 2021, $55 billion in 2022, $56 billion in 2023, and $67 billion in 2024. Much of this growth was linked to Iran’s “oil-for-goods” and “oil-for-gas” swap arrangements with partners like Russia and China. Gas exports, by contrast, were often paid for in local currencies, held in restricted accounts, or delayed due to arrears. Iran’s parliament has repeatedly debated the problem of “frozen revenues” in Iraq’s Trade Bank. Sanctions, while softer in legal terms on gas, exploited the infrastructural rigidity of pipelines to undermine Iran’s ability to monetise resources.
Surely, the recently active pipeline diplomacy of Iran has opened up new opportunities for the increase of gas exports in the nearest future. For instance, the Iran-Russia treaty covers energy cooperation, especially building new gas pipelines for a minimum volume of 2 billion cubic meters to maximum of 55 billion cubic meters. Also, the latest developments in Iran-Armenia relations can improve gas exports.
The effectiveness of economic statecraft is thus shaped not by legal text alone but by the physical properties of commodities. Oil, as a liquid hydrocarbon, can be blended, diverted, and anonymised through maritime networks, granting it an inherent “evasion potential” that gas–tied to pipelines–cannot replicate. This material reality has inverted conventional wisdom on vulnerability amid sanctions: pipelines, designed to foster interdependence, have become Iran’s strategic liability, while oil’s global fungibility has enabled the rise of “shadow markets of last resort.”
This paradox underscores a crucial lesson: sanctions succeed not only through legal design or enforcement rigor, but also through alignment with the physical realities of energy trade. As global energy systems shift toward digitalisation, financial decentralisation, and renewable integration, the future effectiveness of sanctions will increasingly hinge on the technical and infrastructural characteristics of targeted commodities. For Iran, the challenge will be to balance the short-term resilience of oil with long-term vulnerabilities in gas, while for sanctioning powers, the case highlights the importance of tailoring economic statecraft to the unique properties of each resource.
