Despite recent sanctions relief from the US, Iran faces significant hurdles in offloading its substantial oil reserves. The US Department of the Treasury announced on 22/6 a comprehensive waiver of long-standing sanctions on Iran's oil trade. This allows Iran to produce, sell, and transport crude oil, petroleum products, and petrochemicals until 21/8, during ongoing negotiations between the two sides. However, analysts believe Iran will likely still face challenges in releasing its oil stockpiles, as a US port blockade in April had stifled exports, causing crude oil stored in their reserves to fill up further.

A primary challenge stems from China, traditionally Iran's largest crude oil customer, which is showing reduced interest in increasing Iranian oil imports. Fereidun Fesharaki, Chairman of FGE NexantECA, commented on CNBC that "China does not appear eager to buy oil from any country." For many years, China's private refineries were the main buyers of Iranian oil, leading to a 1 million barrels per day production increase by Tehran between 2020 and 2023 due to high demand from Beijing. Although Beijing stated it does not recognize unilateral sanctions on its trading partners, the US Department of the Treasury later imposed sanctions on some Chinese private refineries for this activity, leading to a gradual decrease in their purchases of Iranian crude oil.

Ships anchored in the Strait of Hormuz off Bandar Abbas city, Iran, on 17/6. Photo: AP

China's demand for oil has further diminished due to regional conflicts and a strategic shift towards green energy. China's oil imports continued to decline since the Middle East conflict erupted in late February, leading to a drop in global fuel demand. In May, the country's oil imports fell 29% compared to the same period last year, to 7.82 million barrels per day – the lowest since February 2018, according to Wind Information. By June, Bloomberg reported that China's oil imports from Iran halved compared to the previous month, to 654,000 barrels per day. According to a report by the Institute for Security and Development Policy (ISDP), the Middle East conflict "has caused China to focus on strategy and further fueled its green transition efforts." Chinese Premier Li Qiang reaffirmed that the country needs to expand non-fossil energy sources, build new energy systems, and encourage innovation and accelerate reforms.

Concurrently, a surge in global oil supply from other major producers is intensifying competition for market share. The Organization of the Petroleum Exporting Countries and Allies (OPEC+) has consistently raised production quotas recently. A report by United Overseas Bank stated, "This increase is part of their plan to reverse production cuts made several years ago. OPEC+ has raised quotas by a total of 940,000 barrels per day since the conflict erupted." Tiago Lacerda, a market analyst at the online trading platform Axi, told CNBC, "The wave of increased supply is real." The amount of oil at sea is surging, with Iran exporting over 40 million barrels since the US lifted its port blockade. Russia's oil exports had also previously soared to record highs.

Adding to the complexity is the persistent risk of disruptions in key shipping lanes and new fee structures. The threat of interruptions to oil flow through the Strait of Hormuz cannot be entirely ruled out. This could further complicate the challenge of ensuring energy supply. The Chairman of FGE NexantECA stated that Iran has announced that "free" passage through the Strait of Hormuz will only last for 60 days before they implement a multi-tiered fee mechanism.

Ha Thu (according to CNBC, Reuters)