Increased US oil production has boosted global supplies, which has reduced -- but not eliminated -- the risk from tighter sanctions, said Rachel Ziemba, an adjunct fellow at the Center for a New American Security. "If easy oil conditions persist, in line with sluggish growth, I do think they may make it easier to continue with enforcement," she said.

Oil prices have come down quite a bit and most analysts seem to be concerned with further macro risks, so Washington can risk some sanctions-related disruptions without worrying too much about a price spike, said Fernando Ferreira, director of geopolitical risk service at Rapidan Energy Group. "Current market conditions give the administration more wiggle room to act," Ferreira said.

NYMEX WTI crude prices are ending 2023 down around 5% from year-ago levels as markets eye a global supply overhang in early 2024. Non-OPEC supply growth is set to outpace slowing global demand growth next year, S&P Global Commodity Insights data shows. Even with OPEC+ extending voluntary production cuts into the new year, data shows there still be an implied liquids surplus of 2.2 million b/d in the first quarter.

Global inventories have climbed in the final months of 2023 and builds are expected to accelerate in early 2024, peaking around May with the addition of around 150 million barrels before draws resume, S&P Global data shows.

This budding supply overhang has contributed to the formation of a deep contango structure in crude forward curves. The sixth-month NYMEX WTI contract premium to the front-month widened to around $1.20/b in mid-December, an S&P Global analysis showed, marking the widest contango in that part of the curve since November 2020.

Other factors

For global oil supplies, other factors like regional conflicts, OPEC+ decisions, the scale of US and Chinese demand, and disruptions of major shipping routes are expected to be more important than sanctions decisions.

While some experts still see leeway for Washington on sanctions, others say risks from these factors will indeed limit the administration's options.

Disruptions in the world's major waterways are affecting shipping prices and insurance prices and have built in a new premium in oil and LNG prices, said Brenda Shaffer, an energy expert at the US Naval Postgraduate School.

Addressing waterway security more directly could add jitters to the global oil price, Shaffer said.

"With this in the background and in an election year, it is not likely that the Biden administration will enforce sanctions and undertake policies that will take oil barrels off the market," she said.

S&P Global Commodities at Sea data shows around 8.25 million b/d of crude and refined products flowed through the Suez Canal from January through November 2023. Of that total, 4.72 million b/d were southbound, including of 2.7 million b/d of crude, and 3.531 million b/d of flows were northbound, including 1.275 million b/d of crude.

Focus on Russia

Washington's immediate oil sanctions focus is on Russia, said Ferreira. "We expect a significant ramp-up in sanctions enforcement next year," he said.

More enforcement will increase the costs and risks associated with the shadow fleet and funnel more exports through price cap-compliant services, he said.

Ziemba expects enforcement of the price cap to be more targeted, with some additional tankers listed and perhaps some spot checks. Insulating the global economy from shocks will argue against more extensive enforcement, she said.

The US may see lower crude prices as a tailwind for a tighter squeeze on the Russian shadow fleet, according to a Dec. 20 note from Clearview Energy Partners.

"Once Urals moved below the $60/b threshold, cap-compliant trade could offer an outlet for barrels that might otherwise have moved via shadow fleet capacity and Russian middlemen," Clearview said.

Platts assessed FOB Urals Primorsk below $60/b from Dec. 6 to Dec. 12, according to S&P Global Commodity Insights data.

Limited action on Iran

Most experts expect little change in the US enforcement of Iranian oil sanctions.

"I don't think Biden will enforce the sanctions on Iran any more strictly than he has now, unless there is some sort of escalation in the Gaza/Israel conflict in which getting tougher on Iran might make a difference," said Ellen Wald, president of Transversal Consulting.

Ferreira was also skeptical that anything would change. "No one seriously believes this administration is willing to take the type of enforcement actions against Chinese traders, shippers and buyers that would crimp Chinese imports of Iranian oil," he said.

Iran's ties to the Houthis are also complicating matters, said Shaffer.

"Iran knows that it has the Biden administration over a barrel in an election year and is using its proxy – the Houthis – against international shipping in the Red Sea, and its proxies in Syria and Iraq against US forces there, with no fear of American response," she said.

Venezuelan situation

In Venezuela, where the US eased oil and mining sanctions for six months in exchange for progress toward fair elections in 2024, the Biden administration will likely defer to the Venezuelan opposition's assessment of whether Venezuelan President Nicolas Maduro is delivering on his promises, Ferreira said.

"Neither the Biden administration nor the opposition want to undermine the process by prematurely reimposing sanctions, so any changes before April will be symbolic, if they happen at all," Ferreira said. "I suspect we'll roll over the licenses again in April and wait until after the Venezuelan elections to make any adjustments."

The US will likely be flexible in negotiations and wary of reimposing sanctions that could undermine humanitarian issues, Ziemba said. The sanctions pause will likely remain in effect at least until the six months expire, but some areas of sanctions may be reinstated, including potentially those on the gold trade, she said.