Tehran Takes the Strait — and the Premium

March has turned into a month of hard power tests for Iran – and so far, it has been quietly exceeding expectations. By effectively blocking the Strait of Hormuz to all but its own cargoes (or the ones that have received their approval), Tehran has demonstrated that the trajectory of the conflict is far from being dictated by its counterparts. Faced with the risk of acute shortages in medium-sour crude, the US administration has been forced into a partial sanctions retreat, allowing Iranian barrels already at sea to re-enter the market. The result is a striking reversal — Iranian crude, once deeply discounted, is now trading at a $1/bbl premium to ICE Brent, while the pool of willing buyers is slowly but steadily widening.

Iran entered the escalation phase with export momentum already building, loading crude at 2.2 million b/d in February – the highest level since 2018. In March, when all other Tehran’s neighbours had their barrels trapped inside the Gulf, Iranian crude exports only eased slightly to 1.9 million b/d. But what mattered more than volumes was pricing power. Iranian Light into China has flipped from a steep $12/bbl discount to a $1/bbl premium to ICE Brent, an extraordinary reversal for a heavily sanctioned grade.

At the core of the shift is the disruption in the Strait of Hormuz. While not formally closed, access since March 1 has in practice been limited to vessels aligned with Iranian interests, removing a key share of medium-sour crude from the market – a grade essential for many Asian refineries. Iranian Light (32–33 degrees API) and Iran Heavy (29-30 degrees API) have effectively moved from sanctioned barrels to must-have feedstock.

Washington’s response has emphasised the limits of policy in the face of physical shortages. On March 12, the US moved to release Russian crude from floating storage, followed by a March 20 easing that allowed Iranian barrels already at sea to be sold up until April 19 – a targeted attempt to inject needed grades without fully lifting the sanctions.

Such interventions have provided short-term relief, but they have also accelerated the exhaustion of available supply buffers. Iranian floating storage, which had approached a record 55 million barrels in late December 2025, declined to 34 million barrels by the end of February and has since fallen further to 23 million barrels in early April — its lowest level since October. What was once excess supply stranded by sanctions has become a rapidly depleting source of marginal barrels.

At the same time, control over physical flows has been fully taken by Tehran. Satellite tracking between March 1 and April 7 shows only 92 tankers carrying crude, refined products, and LPG leaving the Gulf through the Strait of Hormuz, of which 60 were either Iranian-owned or transporting Iranian cargo. Among the remaining 32 vessels, roughly one-third were destined for India. The implication is clear: the Strait has not been formally closed, but it has been operationally nationalized.

Since the beginning of the conflict, Iran has faced fewer difficulties in finding buyers for its barrels than before. China remains the core demand center, with imports reaching 1.6 million b/d in March (the highest since November 2025) out of total Chinese seaborne crude imports of 10 million b/d. However, these flows reflect a segmented market: large state-owned buyers continue to abstain due to compliance risks and transaction complexity, leaving independent refiners in Shandong province to absorb the majority of volumes. These teapot refiners operate through yuan-denominated payments via smaller regional banks, effectively bypassing traditional financial channels.

Outside China, Iran’s export options have been evolving. Syrian demand, previously in the range of 80,000–100,000 b/d, has effectively disappeared following the political transition in early 2025. However, Southeast Asia continues to function as an important logistical staging ground, with ship-to-ship transfer hubs in Singapore and Malaysia facilitating the onward movement of Iranian barrels into China’s independent refining sector, particularly around Rizhao and Dongjiakou.

India, meanwhile, is emerging as the next most interesting buyer on the list. The high-profile case of the tanker Ping Shun, carrying 80,000 tonnes of Iranian Light and initially bound for Vadinar, illustrated the complexity of these flows when it was rerouted to China mid-voyage. While speculation pointed to payment constraints, Indian authorities attributed the change to routine adjustments in bills of lading. Besides, the Vadinar refinery is scheduled for maintenance from April 9 (thus needing no crude intakes for the current month). Nevertheless, Indian engagement with Iranian supply is expanding. The tanker Jaya, carrying 280,000 tonnes of Iranian crude, is currently en route to India with an expected arrival on April 10 after having floated near Singapore for several weeks. Additional deliveries already include LPG cargoes of 12,000 and 44,000 tonnes discharged in Mangalore in late March and early April, alongside shipments of high-sulfur fuel oil and naphtha.

If oil flows are adapting, payments are evolving even faster. Tehran’s proposed ceasefire framework (admitted as the starting point for the negotiations by the US) includes a controversial provision: transit through the Strait of Hormuz would require Iranian approval – and payment. At least one vessel is already reported to have paid around $2 million for passage, allegedly settled in yuan. The Financial Times reported that a spokesperson for Iran’s Oil, Gas and Petrochemical Products Exporters’ Union said the proposed tariff would be $1/bbl. While there is speculation that payments could be made in cryptocurrency, Iran is more likely to favour settlement in hard currencies, which are easier to convert and have transactional utility in trade. In this context, the Chinese yuan stands out as a particularly practical option. With a significant share of China’s oil trade with both Russia and Iran already conducted in yuan, such a model has clear potential to scale – with far-reaching implications. A sustained shift toward yuan-denominated transactions in oil trade and oil-related services would erode the dominance of the petro-dollar system, introducing a parallel framework anchored in China’s financial ecosystem. For Washington, this would mean not just a tactical setback but a real challenge.

Whether such a transition materializes will depend on the response of other regional actors, particularly Gulf states that have suffered both physical and reputational damage during the conflict. Their willingness (or refusal) to recognize Iran’s emerging role as both gatekeeper and toll collector will shape the next phase of market evolution. For now, however, the balance of power is unmistakable. In a market defined by crude shortages and constrained logistics, the decisive factor is no longer production capacity alone – but control over movement. And in that respect, Iran has shifted from being a sanctioned supplier to becoming the arbiter of flow itself.

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