Iran is losing its foothold in the international base oil market amid questions about the future of U.S. sanctions, said Mehrdad Vajedi, CEO of Global Oil, a lubricants and fuel trading company based in the United Arab Emirates.

Irans API Group I base oil production has traditionally dominated the Middle Easts spot market but the countrys base oil suppliers were hamstrung by sanctions. They hoped to regain their market position after signing the nuclear deal with the United States that President Donald Trump has since threatened to tear up.

The U.S. Congress declined to impose fresh sanctions before the Dec. 12 deadline, pushing the decision back to President Trump to continue the waiver after he did not certify the terms of the Iran nuclear agreement in October. The uncertainty is hampering the Islamic Republics reentry into the international base oil market.

Irans woes are compounded by economic issues at home. I would not be surprised that within the next five to seven years, demand for Irans Group I base oils will decline very sharply due to the high cost of production and the availability of higher-quality Group III from the Middle East. The country may turn into a net importer of base oil in 10 years time if the situation doesnt change, Vajedi told LubesnGreases.

Demand could be further dented by stricter fuel quality standards to alleviate pollution and a move toward higher quality base stocks as the vehicle fleet modernizes in India, a key export market, as well as the UAEs restrictions on Iranian-origin products, which has seen import volumes drop in the past six months, Vajedi said.

Even so, demand from elsewhere in the Middle East and Africa, combined with supply tightness as Group I production units in Europe close, have generally buoyed Group I prices, which rose in the first quarter of 2017 and have remained stable since.

African demand from Iran and other parts of the Middle East has grown, but challenges such as poor infrastructure and a lack of access to foreign exchange dampen the outlook for the continent. Africa can be an alternative [destination] for Irans base oil, provided that local companies start tackling the African lube market themselves, as there are not many manufacturers of lubes in East Africa that can absorb all of Irans base oils, Vajedi said. Still, Iranian blenders are a major supplier of finished lubricants to Africa, one of its few consistent export markets during sanctions, together with China, India, the Middle East and neighboring Turkey.

2017 started with some optimism over the easing of financial sanctions, and prices remain relatively firm, said Izham Ahmad, markets editor at ICIS, at the Middle Eastern Base Oils and Lubricants conference in October.

However, obstacles to Irans exports are proving difficult to climb, especially financial institutions fear of doing business with Iran transacted in U.S. dollars, which is banned. The banking system is a major issue. No international bank wants to be involved, and this is a key point, Vajedi said.