Iran Running Out of Oil Cargoes

Iran's oil shipments to Asia have all but dried up, driving the cost of those cargoes to the highest levels in years even before the US administration announces fresh moves to isolate Tehran and its trading partners.

China's private refiners have long taken the lion's share of Iran's oil. But with little supply available in the region over recent weeks, prices on offer have flipped from a discount to global benchmarks to a premium of around $4 a barrel, according to traders involved in negotiations. They asked not to be named as the discussions are not public.

Much of this scarcity is down to the success of a US blockade, which has left loaded Iranian vessels trapped inside the Persian Gulf and a fleet of empty ones stuck outside. The result is that just 40 million barrels of oil are now in waters east of peninsular Malaysia, a popular holding and transhipment area for Chinese and other Asian buyers - and only an estimated 4 million of those remain unsold, according to data intelligence firm Kpler. That's the equivalent of two supertankers.

Treasury Secretary Scott Bessent is due to unveil a plan later on Monday for "the greatest coordinated economic isolation in the history of the world". Chinese refiners and the banks funding them are the most obvious targets in his sights - but the potential financial and diplomatic cost of an "economic D-Day" move comes into sharper focus at a time when prices are high and supply is close to rock bottom.

To date, US efforts to isolate Iran have focused on lower profile players in the oil universe, sanctioning smaller private refineries, ports and agents - all while holding off heavy-handed enforcement, wary of the unwanted impact on relations with Beijing and of driving up the oil price.

Earlier this year, however, Washington sanctioned Hengli Petrochemical (Dalian) Refinery Co. Ltd., one of China's largest private refiners - opening an unexpected new avenue and prompting an unusually sharp response as China ordered domestic companies not to comply.

The US has so far stopped short of targeting the major Chinese banks.

At current levels the price for Iranian oil is close to the highest since the end of the last Trump administration, said Emma Li, lead China market analyst at analytics firm Vortexa.

"This may prompt teapots to switch back to conventional grades like they did in July or simply reduce runs," she said.

High benchmark prices and secular shifts like the continued adoption of electric vehicles have weighed on Chinese demand, further clouding prospects for small refiners.

Iran has weathered decades of harsh sanctions, and it is unclear that the threat of economic war can shift the conversation from a months-long military campaign that has yet to prompt Iran to surrender. Bessent, however, has vowed to sever "every economic lifeline."

"Iran's enablers purchase and transport its petroleum. They facilitate the flow of its finances through exchange houses and free trade zones," Bessent wrote in a column published in the Financial Times on Monday. "In short, these countries calculate appeasement of the regime to be the safer course. But they would do well to consider the consequences of sustaining it."