With sanctions lifted, Iran still finds it difficult to release its oil reserves

On June 22, the US Treasury Department announced a comprehensive exemption from long-standing sanctions on Iran’s oil trading activities. Accordingly, Iran is allowed to produce, sell and transport crude oil, petroleum products and petrochemicals until August 21, while the two sides continue to negotiate.

However, analysts say that Iran is likely still facing challenges in releasing its oil inventories. The US seaport blockade in April stifled export activities, causing crude oil reserves to become more and more full in their warehouses.

China – the world’s largest crude oil importer – has so far not shown too much enthusiasm about buying more Iranian oil, even though they are traditional customers of this product. “China does not show any interest in buying any country’s oil,” said Fereidun Fesharaki – Chairman of FGE NexantECA. CNBC.

For many years, China’s private oil refineries have been the main buyers of Iranian oil. In the period 2020-2023, Tehran increased production by 1 million barrels a day, due to high demand from Beijing.

The US Treasury Department then imposed sanctions on a number of Chinese private oil refineries for this activity. Beijing announced that it does not recognize unilateral sanctions against its trading partners. However, the amount of Iranian crude oil they buy is also gradually decreasing.

China’s oil imports have continued to decline since the Middle East war broke out in late February, dragging down global fuel demand. In May, the country’s oil imports decreased by 29% over the same period last year, to 7.82 million barrels a day – the lowest since February 2018, according to Wind Information.

In June, Bloomberg said the amount of oil China imported from Iran decreased by half compared to the previous month, to 654,000 barrels a day.

According to a report by the Institute for Security and Development Policy (ISDP), conflict in the Middle East “focuses China’s strategy and adds impetus to its green transformation efforts”. Chinese Premier Li Qiang reaffirmed that the country needs to expand non-fossil energy sources, build a new energy system, and encourage innovation and accelerate reform.

Meanwhile, global oil supply increased after the Organization of the Petroleum Exporting Countries and Allied Nations (OPEC+) continuously raised output quotas recently. “This increase is part of their plan to reverse production cuts made a few years ago. OPEC+ has raised quotas by a total of 940,000 barrels a day since the outbreak of hostilities,” said a report by United Overseas Bank.

“The wave of increased supply is real,” said Tiago Lacerda – market analyst at the online trading platform Axi. CNBC. The amount of oil floating at sea is increasing sharply, with Iran exporting more than 40 million barrels since the US lifted its seaport blockade. Russia’s oil exports also skyrocketed to a record high.

However, the risk of disruption of oil flow through the Strait of Hormuz cannot be completely ruled out. This can make the problem of ensuring energy supply more complicated.

President of FGE NexantECA said that Iran has declared that “free” travel through the Strait of Hormuz will only last for 60 days, before they apply a toll mechanism at many levels.