Analysts say the move could also stoke regional tensions and uncertainty on how the crisis will unfold. Risk has increased, as has the oil price. The real question is what is Trump going to do against nations who still stand behind the treaty, said Stefan Mueller, associate director, research and analysis at IHS Markit.

Iran reasserted itself as an important source of Group I base oils in the shrinking global supply chain after sanctions were eased under the Joint Comprehensive Plan of Action, a deal brokered between the U.S., Germany, France, the United Kingdom, China and Russia in 2015.

The Islamic Republic resumed shipments to Europe and bolstered supplies to other major Group I base oil markets including India and China. It also began importing Group II and III base oils as the Iranian automotive market edged towards higher specification multigrade lubricants – a move widely believed to benefit new Group II and III supply from neighboring Gulf Cooperation Council countries.

Although Irans base oil exports may be curtailed, it is still possible dealings will continue at least in the short term, according to one Tehran-based trader. I personally believe the base oil business has the potential to use other currencies than the U.S. dollar for transactions.

Unconfirmed reports say buyers of Iranian base stocks began cancelling orders in the immediate run-up to Mr. Trumps decision. However, Mehrdad Vajedi director of the United Arab Emirates-based manufacturer and trading company Permian Energy discounted the speculation and believes other markets will easily absorb Irans Group I base oils.

We will see Chinese, Russian and Indian traders buy, Vajedi said. I see less role for U.A.E. traders due to pressure from the U.A.E. and Iran, so products probably will land directly in Asia and Africa.

The immediate fallout will also be tempered by a 90- to 180-day wind-down period before reimplementation of U.S. sanctions, suggesting the full impact on base oil markets may not be felt for some time.

A shortage of Iranian Group I supply could hasten uptake of Group II and III base oils in key markets like India, a long-standing consumer of Iranian base oils. With India moving towards [Bharat Stage IV automobile emissions standard] in 2017 and BS VI by April 2020, Indias preference of base oils would be more Group II and Group III, so my guess is Iranian base oil imports would come down, irrespective of whether there are sanctions or not, said Shailendra V. Gokhale, managing partner of Rosefield DAA International Consultancy in Mumbai.

Gauging how much Iranian base oil export volumes will be hit is difficult. Richard Robinson of Ashburton Global Energy Fund said a worst-case scenario involving strict policing of sanctions could see as much as 700,000 barrels per day of Iranian crude removed from the market, or about one-third of its exports.

In the absence of a commitment by the other signatories to safeguard the Joint Comprehensive Plan of Action, shipments from Iran may also be difficult to insure, analysts said.

The Middle East is now an established base oils and finished lubricants hub, but growing concerns a standoff with Iran might interrupt shipments from the wider region look set to increase market volatility, particularly if Iran suddenly exits the nuclear accord.