Broader signs show the impact of sanctions and decline in business is beginning to put base oil traders under pressure. One U.A.E. trader, who wished to remain anonymous, said that Iranian refiners are worried about the solvency of many traders and are increasingly reluctant to do business with them. Base oil producers are actively trying to bypass U.A.E. ports due to restrictions in place in the U.A.E. and also risk of exposing themselves to local traders who are almost all financially under question mark.

Although Iran is now making direct shipments, news has emerged that the country is also using Malaysia for transshipments. The Iranian business community in Dubai has shrunk dramatically, with many relocating to Malaysia and elsewhere. Samir Madani, co-founder of TankerTrackers.com, a website that monitors Iran’s oil exports, corroborated the rerouting as Tehran continues to rail against the impact of sanctions. All true, and there is plenty more other activity taking place, Madani said. The website plans to release a report this month on Iran’s latest shipping movements.

Still, as much as the focus is on Iran’s base oil exports, the fallout is also hitting the broader U.A.E. economy. The expectation some U.A.E. base oil traders will cease operations is stoking fears that associated businesses could be caught up in the row. The sudden reduction in Iranian origin cargoes calling at U.A.E. ports – notably Jebel Ali and Fujairah – is likely to dampen lubricant demand. Large stocks of cylinder oils are held in both ports. In keeping with the recent statement by Iran’s foreign minister describing Iran-UAE relations as unacceptable, Iran switched bunkering operations to a newly-built fueling terminal on the Iranian island of Qeshm, reportedly reducing costs by U.S. $5 to $7 per metric ton.

The Group I base oils market is increasingly in a state of flux as regional geopolitics and U.S. policy plays out in the coming months. U.S. waivers granted to eight countries that import Iranian oil products are set to expire on May 5. Although the U.S. has stated there will be no extension, it is difficult to see how the policy will unravel amid complex trade ties. India, a major importer of Iranian base oils, has already begun talks with the U.S. to extend the waivers granted to it. India has strengthened its trade relationship with Iran and recently took over operations of the strategic port of Chabahar on Iran’s southern coast, marking the first occasion it has operated a port outside its territory.

The European Union established a so-called Special Purpose Vehicle – initially to allow trading with Iran in essential goods such as medicines – but there is speculation its remit could be widened. An early resolution to U.S.-China trade tensions may also alter the outlook for Iranian Group I base oils as a supply source.