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Iranian Oil to Keep Flowing Mainly to China Despite US Waiver, Kpler Says

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The lifting of US sanctions allowing Iranian oil sales for 60 days is unlikely to lead to a broad return of international buyers, with China expected to remain the dominant destination for Tehran's crude exports, Kpler said in a Wednesday note.

The US Treasury's Office of Foreign Assets Control issued a general license after Washington and Tehran signed a memorandum of understanding on June 18, permitting the sale of Iranian crude oil, petroleum products, and petrochemicals until Aug. 21.

Victoria Grabenwoger, senior research analyst at Kpler, said since the blockade has been lifted, at least one Iranian crude-laden tanker has transited the Strait of Hormuz each day between June 18 and 22.

Iranian crude and condensate exports had averaged around 1.7 million barrels per day before hostilities, and a US naval blockade imposed in mid-April caused shipments to collapse to near zero during May and the first half of June.

Kpler said the removal of the blockade and temporary sanctions relief could allow Iranian crude and condensate production to rebound, rising from 2.9 million b/d in June to 4 million b/d in July and 4.2 million b/d in August.

The data and analytics firm said that if the sanctions waiver is extended beyond August, output could climb to between 4.4 million b/d and 4.5 million b/d, while exports could increase to about 2 million b/d, up from pre-war levels of 1.7 million b/d.

Iran is expected to prioritize reducing inventories and maximizing exports during the waiver period, potentially moving crude into offshore storage in Asia if immediate buyers are unavailable.

Kpler said new buyers were unlikely to emerge in meaningful volumes over the next two months, despite the easing of restrictions, because refiners in Europe and the US would need time to complete compliance reviews.

China will remain the primary buyer of Iranian crude, Grabenwoger said, adding that purchases would likely remain concentrated among independent refiners and potentially state-owned companies if prices remained sufficiently attractive.

However, Kpler said higher asking prices from Iranian sellers and weak Chinese demand could limit any immediate increase in purchases. It estimates China's crude demand fell by nearly 3 million b/d between February and June and expects only a modest recovery to 13.6 million b/d by August.

India is also unlikely to ramp up imports during the current waiver period, Kpler said, noting that refiners have already secured supplies for late August and September from Russia, Saudi Arabia, the UAE and Venezuela.

Indian refiners bought only limited volumes of Iranian crude during the previous US sanctions waivers, due to operational and commercial constraints.

Kpler projected that a fully unsanctioned Iranian oil market would add enough supply to reduce its North Sea Dated crude price forecast by $7-$10 per barrel, implying prices in a $70-$80 range over the next 12 months.

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