What happens when Iran’s oil has nowhere to go?

Where does Iran’s oil go when both exits close? Oil exports from Iran’s southern port city of Jask fell to zero in the first week of September, after falling to 33k bbl / d in August from 76k bbl / d in July. The terminal was built to give Iran an outlet outside the Strait of Hormuz and reduce its reliance on Kharg, which handled around 90% of the country’s crude exports before the war. But the US naval blockade has now largely stranded Iranian crude inside the Gulf, limiting the value of both export routes.

We recently spoke with Dalga Khatinoglu (LinkedIn), an expert on Iran’s energy issues, to find out how long Iran can keep producing without export outlets — and how quickly it could be forced to cut.

ENTERPRISEAM: Jask sits outside the Strait of Hormuz — so why can’t Iran use it as the fallback now?

DALGA KHATINOGLU: Both Jask and Kharg, along with several smaller Iranian oil terminals, are within the area covered by the US naval blockade. There is effectively no way for Iran to move crude outside the blockade line from any of its terminals. Iran also has no pipelines connecting it to neighboring countries. As a result, Iranian oil transportation has been constrained.

E: Where does the crude go if Iran keeps producing it?

DK: Iran has around 95 mn barrels of onshore crude oil storage capacity, most of which is already full. It also has around 55 mn barrels stored on oil tankers inside the blockade area. The only option Iran has left is to cut production to roughly the level of domestic consumption — around 1.9 mn bbl / d of crude oil and 650k bbl / d of condensates.

E: How long can Iran keep selling from crude that is already outside the blockade?

DK: Most likely, within the next one or two months, Iran’s crude oil stocks outside the blockade line will also be depleted, meaning that the country’s ability to sell oil will effectively fall to zero as well.

E: Can smaller terminals, shadow-fleet tankers, or ship-to-ship transfers keep some barrels moving?

DK: It would be hard — as all of Iran’s oil terminals are located in the Arabian Gulf, while Jask is on the Gulf of Oman, but all of them are effectively inside the blockade area. Also, the US is not allowing empty oil tankers to enter the area — practically leaving Iran with no meaningful option other than reducing oil production.