Key Takeaways
The ceasefire in hostilities continues, but so does the effective closure of the Strait of Hormuz as the United States continues its blockade of Iranian ports and Iran threatens maritime traffic.
The blockade is costing Iran around $13 billion per month, and the lack of sufficient storage may require them to slow or stop oil production, which could have long-lasting consequences.
President Trump has extended the ceasefire indefinitely while Iran attempts to determine who is in charge and who speaks for the nation in the talks.
How long it will take to remove any mines in the strait and their potential impact on reopening the passage is unclear, with President Trump stating that any attempts to lay mines would be met with force.
Prices for Brent oil are above $100 and the average price of gasoline is above $4, as of April 24.
The U.S. blockade is working, with the U.S. Navy turning away 33 ships attempting to reach Iranian docks, of which the vast majority were oil tankers, forcing Iran to put its oil into storage. According to the New York Post, most scenarios see Iran having to shut-in oil production after filling its available onshore storage to capacity in two to eight weeks, risking damage to its oil fields. Sudden and long-term stoppage of oil production can result in permanent damage to a fuel reservoir and make it more difficult to restart operations and reach the same level of output as before the shut-in occurred. Iran can choose to lower oil production to stretch out the storage or position oil tankers along its ports as temporary storage space to delay having to cut production.
Reuters reports that the consultancy FGE NextantECA, an energy and chemicals advisory company, estimates Iran has about 90 million barrels of available onshore oil storage capacity, out of a total capacity of 122 million barrels. Iran’s current production is around 3.5 million barrels per day, of which two million barrels per day are refined domestically. It would take about 60 days or two months to fill Iran’s storage to capacity at 1.5 million barrels per day. If Iran chooses to cut production by 500,000 barrels per day, it would take around three months to fill the storage vessels.
Other analytical firms project that Iran has less storage capacity. Energy Aspects, for example, assumes Iran’s available onshore storage is about 30 million barrels, based on data from Kayrros. Under that scenario, Iran could maintain current export levels for two to three weeks, depending on the amount of oil that would have been available for export and is instead stored. Energy Aspects believes Iran cannot use its full nameplate storage capacity, as historic data show stocks peaked at 92 million barrels in May 2020, which may be a realistic ceiling.
President Trump announced he was extending the ceasefire indefinitely, at Pakistan’s request, awaiting a unified proposal from Iranian officials. Meanwhile, the U.S. blockade of Iranian ports will continue, which is estimated to cost Iran about $435 million a day in economic damage, or $13 billion per month. Brent crude oil, the international benchmark, was trading on April 24 at around $105 a barrel, up for a fifth consecutive day, and the average price of gasoline rose to $4.06, according to AAA.
For prices to drop, the Strait of Hormuz would need to be reopened to international traffic. For it to return to the level of prewar traffic, mines that Iran may have laid would need to be cleared. According to the Washington Post, the Pentagon has told Congress that clearing the Strait of Hormuz of mines could take six months, which could mean that oil and gas prices would remain elevated during the midterm elections. The Post reports that lawmakers were told by the Pentagon that Iran may have emplaced 20 or more mines in and around the Strait of Hormuz. Some were laid by Iranian forces using small boats and others were floated remotely using GPS technology, which makes it difficult for U.S. forces to detect as they are deployed.
A spokesman for the Pentagon, Sean Parnell, issued a statement acknowledging that the disclosure was made in a classified briefing for lawmakers and calling the information “inaccurate.” According to Defense Secretary Pete Hegseth, U.S. forces were destroying Iranian vessels that could emplace mines with “ruthless precision.” President Trump authorized the U.S. military to “shoot and kill” Iranian boats placing mines in the Strait of Hormuz. The U.S. Navy was directed “to shoot and kill any boat,” including Iran’s fleet of “small boats,” that is laying mines in the strait, Trump wrote in a post on Truth Social.
Analysis
The United States is continuing the ceasefire until a unified proposal is drafted by Iran and discussions end. The U.S. blockade of Iranian ports, however, will continue. With limited storage capacity and disunited leadership, Iran remains in a tough position as the war continues, increasing the likelihood that they’ll seek a deal with the U.S. sooner rather than later. As Caleb Jasso writes for RealClearEnergy, “Iran is at a strategic disadvantage as it does not have alternate pipelines, such as those in Saudi Arabia and the United Arab Emirates, as a means of bypassing the strategic chokepoint to bring its oil to market… Iran is running out of options and will have to decide whether to cave to the demands of the U.S., or escalate even further to test the ultimate long-term resolve of America’s support of the ongoing conflict.”
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