Europe is the decisive factor under these conditions since the European Union will not reimpose sanctions as long as Iran fulfills its commitments under the JCPOA.

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.

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.

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.

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.

Coupled with voluntary cuts by Japan and South Korea and some reductions by other countries, Europe’s 2012 oil embargo brought Iranian energy exports down by more than half. From 2011 to 2013, Iran’s crude and condensate exports plunged from 2.5 to 1.1 million barrels per day (mbpd), according to data presented by the Middle East Economic Survey.

Exports have rebounded in the past two years, averaging 2.5 mbpd in 2017. EU countries combined have been the largest importers of Iranian oil, with volumes of 624,000 bpd. They were followed by China (622,000 bpd), India (471,000 bpd), South Korea (361,000 bpd), Turkey (240,000 bpd), Japan (170,000 bpd) and Taiwan (26,000 bpd). Just last month, Tehran saw a new post-JCPOA export peak of 2.9 mbpd. But rather than reflecting a sustainable new level, this is a reflection of stocks being emptied in anticipation of the return of US sanctions.

Meanwhile, South Korean imports — mostly condensate — have declined markedly. Amid higher prices charged by Tehran in parallel with the inauguration of a condensate refinery at the southern port city of Bandar Abbas, exports to South Korea dropped to 325,000 bpd in March — a year-on-year decline of 39%.

But most of Iran’s customers are highly unlikely to comply with US oil sanctions. Prior to the nuclear deal, key consumers such as China, India and Turkey rejected the then-joint US-European sanctions effort, though they jointly reduced Iranian imports by 279,000 bpd in a gesture to the Obama administration, which in turn did not apply penalties.

Given the strong backing for the nuclear deal in Ankara, Beijing and New Delhi, it remains highly questionable if they would now voluntarily cut imports from Iran. This will likely be the case at least until the Trump administration puts forward a clear strategy that defines the objectives of its renewed sanctions. Indeed, China — the single largest importer of Iranian oil — just issued a joint declaration with Russia, expressing “unwavering support for the comprehensive and effective implementation” of the JCPOA.

Meanwhile, Europe is not only unlikely to join the United States in sanctioning Iranian oil exports, but is in fact considering the adoption of EU Blocking Regulations legislation. This would introduce legal measures to protect European companies from the effects of extraterritorial US sanctions. In response to Trump’s withdrawal from the JCPOA, the leaders of France, Germany and the United Kingdom have been clear that they will continue to work to ensure “continuing economic benefits to the Iranian people that are linked to the agreement.”

Thus, Japan and South Korea are the only likely candidates to voluntarily cut imports of Iranian oil. Supposing that Seoul and Tokyo will reduce imports by as much as half, as they did in 2012, this would translate to some 250,000-270,000 bpd. As such, the reimposition of US sanctions can realistically be expected to cut Iranian exports by 10%-15% by the end of this year.

In contrast, foreign investment in Iranian energy, and especially by European companies, will be hampered substantially by the US sanctions, with severe and negative long-term implications.

Iran’s energy sector is in dire need of capital and foreign technology, with officials in Tehran putting investment needs at as high as $200 billion. Since the implementation of the JCPOA in January 2016, Iran has only concluded two international energy contracts, with a total volume of $5.5 billion. Even before Trump’s May 8 abrogation, uncertainty over the future of the nuclear deal as well as fear of secondary US sanctions were a key factor in preventing international energy companies from re-engaging with Iran. Beyond hampering an output increase, the lack of foreign participation also threatens ongoing production at many of Iran’s mature oil fields, which require modern technologies for enhanced recovery.

The US withdrawal from the deal will in effect make investments by European energy companies greatly more complicated, if not impossible. The only Western giant that committed to Iran’s energy sector since the implementation of the JCPOA, France’s Total, might possibly end its engagement at the South Pars natural gas field. Company representatives have previously stressed that they would seek a waiver from Washington should the United States withdraw from the nuclear deal. If such a waiver is not granted, Total would have to transfer its South Pars operations to its Chinese consortium partner, CNPC. But while some Asian and Russian firms might step in, this would not fully make up for the absence of Europeans. Indeed, during the pre-JCPOA sanctions years, Iran’s experience with especially Chinese companies was contentious: In 2013, complaints about poor performance led Iran to end CNPC’s operations at South Pars.

As such, the US withdrawal from the JCPOA is likely to keep Iran’s oil production below the post-revolutionary ceiling of 4 mbpd, while slowing the expansion of natural gas output.