Trump might have to maintain blockade for months before Iran feels pain

Locked in a stalemate with Iran that will only end when the economic pain becomes unbearable, President Donald Trump may be forced to maintain a naval blockade of Iran for weeks, which could have serious economic consequences around the world.

Trump said Wednesday he would maintain that stance. US blockade The war against Iran will continue until it accepts the nuclear deal. Meanwhile, Tehran refuses to reopen the Strait of Hormuz until the US Navy cancels it.

It is not clear which side will move first.

Trump said on Sunday that Iran’s oil infrastructure was days away from exploding because crude was being squeezed by the blockade.

“Something happens where it explodes,” Trump said Fox News. “They say they only have three days until this happens. Once it blows up, you can never rebuild it the way it was.”

However, experts said Iran has weeks of space left in its tanks to store oil it cannot export. They said this should give Tehran time to reduce its oil fields in an orderly manner that would prevent permanent damage.

Meanwhile, the oil supply shock worsens with each day that Iran keeps the strait closed, putting pressure on the United States as global economic damage mounts.

“The question for me is who has the longer runway: Trump or Iran,” said Fernando Ferreira, head of Rapidan Energy’s geopolitical risk service.

Iranian tankers blocked

Tehran will feel the heat of the US blockade. It has not been confirmed that an Iranian tanker passed through the US blockade zone, according to ship tracking firm Kpler.

According to Kpler, Iranian-linked ships passed the strait but were unable to pass the blockade that stretches from the Gulf of Oman to the Arabian Sea.

A White House official told CNBC that Tehran is losing $500 million a day due to the blockade.

Kpler found that as Iranian tankers were hunted by the US Navy, oil and condensate loadings at its ports dropped from 2.1 million barrels per day (bpd) before the blockade to just 567,000 bpd after.

Since oil cannot be exported, Iran will have to start filling its storage tanks. Tehran will eventually have to cut oil production as storage tanks approach capacity.

storage capacity

This is where Tehran will start to feel the pinch, according to Rapidan Energy, but it could take a long time to force a response.

“They prepared for the blockade,” Ferreira said. “They thought it through. They saw what happened in Venezuela.”

“They are prepared to last for months,” the analyst said.

Ferreira said there are at least 26 days left before Iran’s storage tanks fill up and production cuts become inevitable. The estimate assumes 26 million barrels of onshore storage and 21 million barrels of floating storage on 18 empty, sanctioned tankers in the region, it said.

But Ferreira cautioned that this was a conservative estimate. The analyst noted that Iran’s maximum storage capacity shows that it has space for another 39 million barrels, giving it 22 more days beyond the 26 days.

Ferreira also said that 31 Iran-linked ships, which will return to the Middle East by the end of May, could provide another 50 million barrels of storage. He said this would allow Iran to hold out for 76 days, or more than two months.

Ferreira said those estimates assume Iran is constantly filling its storage at 1.8 million barrels per day. In fact, he said, Tehran will likely begin reducing production, which will further expand storage space. The analyst also said that they assume that Iran’s oil exports will not bypass the blockade in any way.

“The blockade can be very effective,” Ferreira said. “This is about the timeline for subjecting Iran to excruciating pain.”

He said it would take weeks or months to put Tehran under that kind of pressure. “This runway may be longer than Trump thinks for results,” the analyst said.

The blockade “puts incredible economic pressure on Iran” and will remain in effect until a deal acceptable to the United States is reached, a White House official said.

“The Strait is international water and we will not allow Iran to pass through the Strait,” the official said.

Production was shut down

Antoine Halff, an expert at the Center for Global Energy Policy at Columbia University, said that oil fields could suffer permanent damage if they were closed suddenly, irregularly and uncontrolled.

But Halff, who serves as chief oil analyst at the International Energy Agency, said Iran’s storage capacity buys time to shut down its oil fields in an orderly manner. He said there was no reason for Iran’s infrastructure to explode, despite Trump’s weekend statements.

“If you do everything in an orderly manner, you minimize the damage to the field. There may be no damage to the field,” said Halff, who is also an economist at the U.S. Energy Information Administration.

“It’s definitely a short-term challenge because they’ve run out of cash, but it’s not a major challenge from a field operation standpoint,” he said.

Homayoun Falakshahi, head of crude oil analysis at Kpler, said Iran could reduce production to the minimum level required for domestic consumption, which would make the storage space issue completely meaningless.

Falakshahi said the real question is when Iran will run out of revenue.

The analyst estimates that Iran has 120 million barrels of oil that could be loaded onto tankers east of the US blockade zone and delivered to customers, including China. That’s equivalent to about two months’ income for Tehran, he said, but it could face difficulties selling oil and receiving cash.

“If the blockade continues for another two months, Iran’s oil revenues may drop to zero,” Falakshahi said.

“The administration is pushing the Iranians to return to the negotiating table with a willingness to make more concessions,” he said.