Locked in a standoff with Iran that will only be broken if the economic pain becomes unbearable, President Donald Trump may have to maintain his naval blockade against Iran for weeks – with dire economic consequences for the world.
Trump said on Wednesday that he would maintain it American blockade Action against Iran will continue until it agrees to the nuclear deal. Meanwhile, Tehran has refused to reopen the Strait of Hormuz until the US decommissions its navy.
It is not clear which side will bow first.
Trump said on Sunday that Iran’s oil infrastructure was days away from exploding as crude remains bottled up due to the blockade.
“Something happens where it explodes,” Trump said. fox news. “They say they only have three days left before that happens. When it blows up, you can never make it back the way it was.”
But experts say Iran has several weeks of oil storage space left in its tanks, which it cannot export. This should give Tehran time to systematically reduce oil fields to avoid permanent damage, he said.
Meanwhile, the oil supply shock is getting worse every day, with Iran keeping the strait closed, increasing pressure on the US as global economic damage increases.
“The question for me is who has a longer runway – Trump or Iran,” said Fernando Ferreira, head of Rapidan Energy’s geopolitical risk service.
Iranian tankers were stopped
Tehran will feel the heat from the US blockade. According to ship-tracking firm Kpler, there has been no confirmation of any Iranian tanker passing through the US blockade zone.
According to Kepler, ships belonging to Iran have passed the strait, but have been unable to get beyond the blockade, which stretches from the Gulf of Oman to the Arabian Sea.
A White House official told CNBC that the blockade is costing Tehran $500 million a day.
Kpler found that with the search of Iran’s tankers by the US Navy, oil and condensate loading at its ports has dropped from 2.1 million barrels per day (bpd) before the blockade to just 567,000 bpd.
Iran has to start filling its storage tanks because the oil cannot be exported. Ultimately, Tehran will have to cut oil production as storage tanks near capacity.
storage capacity
According to Rapidan Energy, this is the point where Tehran will start to feel the pressure but it may take a long time to force a response.
“They prepared for the blockade,” Ferreira said. “They considered it. They saw what happened in Venezuela.”
“They are prepared to hold out for months,” the analyst said.
Ferreira said Iran has at least 26 days to fill its storage tanks before production cuts become inevitable. The region is estimated to have 26 million barrels of onshore storage and 21 million barrels of floating storage in 18 empty, approved tankers, he said.
But that’s a conservative estimate, Ferreira cautioned. The analyst said Iran’s maximum storage capacity suggests it has room for another 39 million barrels, giving it another 22 days beyond its 26 days.
Ferreira said there are also 31 ships belonging to Iran that will return to the Middle East by the end of May that could provide an additional 50 million barrels of storage. This would allow Iran to hold out for 76 days or more than two months, he said.
These estimates assume Iran is steadily filling its storage at a rate of 1.8 million bpd, Ferreira said. In fact, he said, Tehran would likely begin cutting production, leading to further increases in storage. The analyst said, he also believes that the blockade will not stop Iranian oil exports at all.
“A blockade can be very effective,” Ferreira said. “This is about a deadline to put Iran into unbearable suffering.”
It will take weeks or months to bring Tehran under that kind of pressure, he said. “That runway may be longer than Trump had in mind for the outcome he planned for,” the analyst said.
The White House official said the blockade has “put incredible economic pressure on Iran” and will remain in place until they reach a deal that is acceptable to the US.
“This strait is international waters and we will not allow Iran to impose tolls on this strait,” the official said.
production stopped
Antoine Half, an expert at the Center on Global Energy Policy at Columbia University, said oil fields could be permanently damaged if they are shut down in a sudden, disorganized and uncontrolled manner.
But an orderly shutdown of oil fields takes time because of Iran’s limited storage capacity, said Half, who serves as chief oil analyst at the International Energy Agency. There is no reason, he said, that Iran’s infrastructure would explode despite Trump’s weekend comments.
“If you do all this in a systematic way, you minimize the damage to the field. You may not get any damage to the field,” said Hoff, who was also an economist at the U.S. Energy Information Administration.
“It is definitely a short-term challenge because they do not have cash, but in terms of field operations it is not a major challenge,” he said.
Iran could cut production to the minimum level needed for domestic consumption, making the entire question of storage space irrelevant, said Homayoun Falakshahi, head of crude oil analysis at Kpler.
The big question, Falakhshahi said, is when Iran’s revenues run out.
Analysts estimate Iran has 120 million barrels of oil loaded on tankers east of the US blockade zone that could be delivered to customers including China. This is equivalent to about two months of revenue for Tehran, he said, although it may face challenges selling oil and obtaining cash.
“If the blockade continues for another two months, Iran’s oil revenues could drop to zero,” Falakhshahi said.
“The administration’s gambit is that it forces the Iranians to come back to the negotiating table with a willingness to make more concessions,” he said.
