Iran does not need a deal right now because its military or political room for manoeuvre has narrowed. It needs one because the crisis has turned oil (Tehran’s most important economic weapon) into a problematic asset. For years, Iran’s export model survived sanctions by leaning on China, discounted barrels, ship-to-ship transfersand a shadow logistics chain running from Kharg Island to MalaysiaSingapore and China’s independent refining system. The crisis in the Strait of Hormuz has not destroyed that model, but it has hit the one part that Tehran could not easily replace: the ability to move crude out of the Gulf.
The squeeze is visible in loading data. Iranian crude exports averaged around 1.5 million b/d in April, already 20% lower than in March. In May loadings dropped dramatically to just 260,000 b/d. June looks even more gloomy: most loadings so far remain unassigned to any destination and stay within the Gulf, while only three May cargoes managed to pass through the Strait in June.
Once the US military blockade was put in place on April 13preventing Iranian vessels from entering or leaving the Strait, Tehran’s earlier tactic of keeping the waterway open for its own fleet while constraining others was ended. The timing of the blockade was particularly painful. Before the conflict, Iranian barrels were reportedly trading at a discount of around $9-10/bbl. Before the US blockade came into effect, the scarcity triggered by the conflict flipped the pricing logic: Iranian Light was reportedly sold at a premium of $1.5-2/bbl to ICE Brent in April. This way, Tehran was making roughly $124 million/day, and that stronger pricing environment lasted till the US blockade in mid-April.
That is where the pressure becomes structural. According to Kpler data, Iranian onshore oil inventories have risen to Covid-era highs, increasing from 60.6 million barrels in mid-January 2026 to 72 million barrels by mid-June (a rise of roughly 15%). The figure has barely moved since May, making it look increasingly like a tank-top situation. Total Iranian floating storage has declined since mid-May, falling from 43 million barrels to 33.5 million barrels. However floating storage stranded inside the Gulf has been rising steadily since mid-April, just as the blockade took effect, climbing from 14 million barrels in mid-May to about 24 million barrels now.
Falling floating storage near Singapore and China suggests Iran is monetizing barrels that had already escaped the Gulf before the blockade fully closed the route. Rising floating storage inside the Gulf points to the opposite problem: new barrels were stranded with little hope of transiting through the US blockade. Tehran was making use of its last liquid buffer in and around Singapore while fresh crude accumulated in the Gulf, where it could not be sold.
China remains at the centre of the trade. Before the crisis, Beijing was absorbing almost all of Iran’s 1.5-2 million b/d of exports, either directly or through STS points near Singapore and Malaysia. Even as China’s overall crude import demand weakened, with refiners drawing more heavily on domestic strategic reserves and refinery activity slowing, Iranian barrels remained an integral part of the country’s intake. In May, Chinese seaborne crude imports fell to 6.8 million b/d from 11.4 million b/d in February, but direct Iranian crude trade still stood at 1.4 million b/d, only around 150,000-200,000 b/d below pre-crisis levels.
Much of this oil, however, was not newly loaded from Iran after the blockade. The May and June barrels arriving in China were largely coming from floating storage near Singapore or Chinese shores. All five vessels that loaded directly from Kharg Island and then discharged in China in June had sailed from the Gulf before mid-April. The trade was being sustained by inventory already outside the bottleneck.
Another important factor to consider is that since the beginning of June, both onshore inventories and the floating fleet have barely changed despite the blockade. The most plausible explanation is that Iran has already reduced or partially halted oil production, with this temporary standstill likely beginning around mid-May or the end of May. Shutting in production is not just a technical adjustment: restarting flows can be difficult, domestic oilfield services are disrupted, revenue losses deepen. What began as an export problem might gradually become a production problem.
This is why the deal that President Trump and the Iranian government are expected to formalize this Friday matters so much for Tehran. Reopening the US blockade may be more immediately important than the Reconstruction and Development plan or the return of frozen Iranian funds. Those are politically valuable, but the first-order need is simpler: Iran needs its export valve reopened before storage constraints force deeper and more damaging production cuts.
Washington obviously needs the deal, too. Despite the military blockade having put Iran under severe pressure, the cost has been global. Crude, gas and refined product markets have been disrupted. US partners in the Gulf have had to shut down oil and gas production, while Asian refineries, including in countries allied with Washington, have been hit by the interruption of regional flows. Disrupting one of the world’s most important energy hubs is never a local event.
Still, this week’s political breakthrough will not bring instant relief. Even if the Strait reopens, ships will need to queue, while insurers, charterers and refiners reassess risk. The 60-day ceasefire must hold and eventually be extended; without that, normalization cannot be expected. Any lifting of sanctions on Iranian oil will also require serious compliance work, while Iran’s banking system remains largely sanctioned. Previous rare purchases by buyers outside China depended on complicated payment routes: for instance, Indian Oil Corp’s reported purchase of 2 million barrels of Iranian crude in late March, worth around $200 million, with payment routed in yuan via ICICI Bank’s Shanghai branch.
Pricing is the final risk. Every buyer, shipowner and bank dealing with Gulf cargoes will have to price the risk. That risk will show up in freight, insurance, payment terms and crude differentials. Iran will almost certainly have to return to the discounted crude model that existed before the crisis. China, however, will return to Iranian barrels as soon as it can: for Beijing, discounted Iranian crude with political and logistical risk is still preferable to other Middle Eastern barrels carrying similar regional risk but without the same price advantage.
That is why the timing could hardly be better for Tehran. The blockade has turned its oil complex into a storage problem, its export model into a logistics problem, and its sanctions strategy into a cash-flow problem. The deal arrives just as the pressure has become palpable enough to impact immediate output, but before the inability to move crude out of the country turned into a deeper loss of production capacity.
By Natalia Katona for Oilprice.com
