Iran Holds Nearly 40 Million Barrels of Crude Oil Near Malaysia Amid U.S. Blockade

<p>Nearly 40 million barrels of Iranian crude oil are currently aboard tankers in waters near Malaysia, east of Singapore, despite a U.S. blockade aimed at restricting Iranian oil exports. This cargo represents approximately 20 very large crude carriers’ worth of oil, which could allow Iran to generate revenue from crude that is outside the blockade zone.</p><p>The situation presents a challenge for the Trump administration as it transitions from military action and naval blockades to a financial strategy against Iran. Treasury Secretary Scott Bessent recently announced Operation Economic Outcast, which aims for a "zero-leakage approach" to cut off Iran's revenue sources.</p><p>According to provisional data from Kpler reported by Reuters, China's imports of Iranian crude have decreased to an estimated 534,000 barrels per day in August, down from approximately 823,000 barrels per day in July. However, millions of barrels that were transported before the blockade was tightened remain available for potential buyers. Iran reportedly has around 80 million barrels of crude in floating storage, with about half located near Malaysia.</p><p>The U.S. faces the challenge of preventing Iran from monetizing oil that is not trapped by the blockade. If Iran can successfully sell this oil, it may use the funds for imports and military rebuilding efforts, despite restrictions on new exports.</p><p>Max Meizlish, a former Treasury official, noted that the current blockade is not fully stopping the flow of Iranian oil that has already passed the blockade line. Iranian oil can still be transferred through ship-to-ship transactions, which can obscure its origin before reaching buyers, often independent Chinese refineries.</p><p>While having crude outside the blockade does not guarantee Iran usable revenue, the country still needs to deliver the oil, collect payments, and navigate financial channels to evade sanctions. Treasury has indicated that Iran primarily conducts oil sales in Chinese yuan, utilizing exchange houses and front companies to convert these funds into usable currencies.</p><p>The U.S. has sanctioned various Chinese and Hong Kong trading entities accused of facilitating Iranian sanctions evasion but has not yet designated a Chinese financial institution. Meizlish suggested that formally designating such a bank could exert pressure on the China National Petroleum Corporation and disrupt channels for moving Iranian oil revenue.</p><p>The U.S. has already targeted the Malaysia route, sanctioning the Hong Kong-flagged tanker Lynn in April for conducting a ship-to-ship transfer of Iranian crude before delivering it to China. Meizlish proposed increasing pressure on shadow-fleet vessels operating near Malaysia to prevent this oil from reaching buyers.</p><p>Despite a decline in Chinese purchases, Meizlish emphasized that crude on shadow-fleet tankers remains a potential revenue source for Iran. He stated that the U.S. should intensify efforts to interdict this oil to prevent it from benefiting the Iranian regime.</p><p>A War Department official confirmed that U.S. forces will continue global maritime enforcement to disrupt illicit networks and interdict sanctioned vessels supporting Iran. Under Operation Economic Outcast, the Treasury Department warned that entities conducting business with Iran may lose access to the global financial system.</p><p>Meizlish cautioned that funds from oil on shadow-fleet tankers could still reach Tehran and assist in rebuilding military capabilities. He noted that seizing these ships and their cargo could lead to legal complications, and suggested Congress could facilitate the seizure of illicit cargoes.</p><p>Bessent’s campaign extends beyond oil, targeting digital assets, technology, gold, aviation, and shipping, while threatening broader secondary sanctions against those doing business with Tehran. The decrease in Chinese purchases indicates Iran is struggling to sell new oil, but millions of barrels remain outside the blockade.</p><p>The ability of Tehran to sell this oil and the U.S. response to it near Malaysia will be critical in assessing the effectiveness of the "zero leakage" strategy.</p>