The U.S. naval blockade on Iran’s ports aimed to thwart the country’s crude exports. However, in recent days, several specialists have warned of a serious fallout: the country’s storage capacity is nearing its limit and — as a result — oil wells could be forced to shut down. It is a situation that could lead to dangerous long-term damage to crude oil extraction facilities.
After failing to force Iran’s unconditional surrender through military strikes and threats as extreme as “a whole civilization will die tonight,” Washington has opted for a strategy of economic attrition by imposing a maritime blockade in the Strait of Hormuz. This has obstructed oil and petrochemical products, while a latent and growing crisis has gone almost unnoticed: the limits of Iran’s onshore storage.
The maximum capacity of these onshore deposits is 42 million barrels, according to data from the Iranian Oil Terminals Company. Other sources put the figure at around 50 million. Despite decades of unilateral U.S. sanctions that have eroded its position as an energy powerhouse, Iran continues to extract 1.5 million barrels a day of crude oil that it is unable to place on the international market. And before the start of the U.S. blockade, about 60% of its storage capacity on land was already in use.
Most of these reserves — around 30 million barrels — are stored on the strategic island of Kharg, in the Persian Gulf, reaching it via a network of pipelines. According to Miad Maleki, former head of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), when the bilateral naval siege on Hormuz began, the Kharg reservoirs had about 13 million barrels of free capacity.
In the midst of the conflict, Iran has chosen not to publish official data regarding how much storage capacity remains on Kharg. However, state television has implicitly acknowledged the problem in a program featuring economist and energy expert Mahdi Razmahang, who said, “the main challenge arising from the blockade is not the exit of oil, but the entry of empty tankers into the terminals in Kharg and Jask to maintain storage capacity.”
Floating storage under threat
The National Iranian Oil Tanker Company, which has a fleet of around 75 ships, including about 40 supertankers with a capacity of approximately two million barrels each, has historically been key to getting around sanctions. In fact, Iran’s floating storage capacity has traditionally surpassed that of its storage capacity on land. However, the tightening and prolongation of the blockade also threaten this advantage.
In 2019 and 2020, following Donald Trump’s decision to pull the United States out of Barack Obama’s nuclear deal and tighten sanctions, Iran faced a similar crisis. Razmahang recalls that “exports fell to 200,000 barrels per day and storage problems arose.” Floating storage had to be offloaded in South Korea, where payments of $6 billion were frozen due to U.S. sanctions before being transferred to Qatar. In Razmahang’s opinion, “the United States exploits this vulnerability by preventing the entry of empty tankers.”
In recent days, Iran has even mobilized a decommissioned tanker, the Nasha, to load crude oil in Kharg, an unmistakable sign that storage capacity is approaching a critical point. If the blockade remains effective and Iran’s so-called shadow fleet fails to gain access to the terminals, storage capacity is at risk of collapse in the coming weeks.
Given that scenario, Iran would be forced to reduce production. But cutting back or stopping extraction can damage the structure of the wells and permanently reduce production capacity. Restarting the wells would require considerable investment and advanced technology, and some estimates suggest that a forced shutdown could permanently eliminate up to half a million barrels per day of capacity, which translates to billions of dollars annually in revenue.
In this context, Esmail Saghab Esfahani, vice president and head of Iran’s Strategic Energy Management and Optimization Organization, warned: “If any part of our infrastructure, including oil wells, is damaged by the blockade, we guarantee that we will inflict four times that damage on the infrastructure of the countries that support the aggression. Our arithmetic is different: one oil well equals four.”
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