Iran Juggles Oil Cuts and Storage Strain to Resist US Blockade

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Stress in the System

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The buildup reflects a sharp drop in flows out of the Persian Gulf. Observable loadings have declined since the blockade, although the data can be difficult to interpret and often shows up on a delay. 

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US Treasury Secretary Scott Bessent wrote on X this week that Kharg Island is “soon nearing capacity.” It’s a reality he said would cost Iran $170 million per day in lost revenue and force it to the negotiating table.

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“It looks like there’s been a significant slowdown in production,” Antoine Halff, co-founder and chief analyst at data and research firm Kayrros, said on a conference call this week. “There is stress in the system.” 

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If storage fills completely, Iran would have little choice but to cut production by the volume it can no longer export. Based on prewar domestic use of about 2 million barrels a day, that would leave fields operating at roughly half their potential. Another alternative is overland transportation to countries like Turkey, Pakistan, Afghanistan and Uzbekistan, Hosseini said, adding that capacity would be 250,000 to 300,000 barrels per day. 

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But tapping more inventive options may become increasingly difficult, including potentially moving some oil products by rail to China, the top buyer of Iranian crude. The link from Tehran to cities such as Yiwu and Xi’an is faster than sea transport though less economical, a challenge for China’s so-called teapot refineries, which rely on discounted crude and operate on tiny margins.

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The US Treasury Department sanctioned dozens of individuals this week accused of overseeing Iran’s “shadow banking” network. Among the targets, Bessent wrote on X, were teapot refineries.

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Manage Constraints

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For now, reducing output may give Iran more room to manage constraints and preserve its ability to ramp production back up if conditions ease, Halff said.

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Until the blockade, Iran’s oil sector had remained resilient. It produced about 3.2 million barrels a day in March, and exports were holding near prewar levels, according to data compiled by Bloomberg using ship-tracking information and estimates from consultants.   

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The country also retains significant tanker capacity — equivalent to roughly 37 very large crude carriers — both inside and outside the blockade. In total, Iran has access to 65 million to 75 million barrels of floating storage capacity, according to Vortexa, much of it tied up in “dark” tankers operating within the Gulf.

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That capacity could buy time, though how much will depend on how strictly the US enforces the blockade.

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Ultimately, Iran has built its oil-export infrastructure around flexibility, said Claire Jungman, director of maritime risk and intelligence at Vortexa. By drawing on floating storage, ship-to-ship transfers and older tankers, the country has multiple levers to keep oil moving.

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“This allows flows to continue in the near term, even under tighter enforcement,” she said, adding that the ability of vessels to cycle back into the Gulf to reload will be critical. “We would frame this as a constrained but functioning system, rather than a full disruption.”

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—With assistance from Golnar Motevalli, Julian Lee, Rakteem Katakey and Chris Miller.

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