Iran faces the risk of running out of oil storage space

US President Donald Trump announced on April 26 that the prolonged US seaport blockade has prevented Iran from exporting the large amount of crude oil it exploits every day. “When huge oil reserves are compressed in the system, the pressure will cause the pipeline to explode from the inside, or even explode from underground. Once that happens, Iran will never be able to restore its old infrastructure,” Mr. Trump said.

Iran has not commented on this statement, but satellite images and data released by energy analysis company Kpler on April 27 show that Iran’s oil industry is facing an unprecedented challenge, as the US seaport blockade from April 13 continues to choke export activities, causing crude oil reserves to become more and more full.

Iran’s oil storage system is divided into land-based tanks and floating storage at sea. Onshore, total capacity is estimated at 90-95 million barrels. As of the end of April, Iran’s oil inventory was about 49 million barrels, meaning the country only had space to store about 41 million more barrels.

Kpler said that this number is likely to also significantly exaggerate Iran’s actual capacity to store oil, because some facilities are only used for certain types of oil and gas or are inaccessible.

The storage facilities in Sirri and Lavan cannot be used to store crude oil on land, while the facility in Assaluyeh is specifically used to store condensate from the South Pars field. Areas within the Bandar Abbas complex are subject to similar restrictions.

Taking these limitations into account, the equivalent of 14.9 million barrels of storage capacity is practically unusable. This reduces Iran’s onshore storage capacity to about 26 million barrels, equivalent to 14 days of production and exports at current levels.

According to Firstpost, Iran also has the ability to short-term store oil on existing tankers in the Persian Gulf, including large VLCC or Aframax tankers, with an estimated capacity of about 15.4 million barrels.

Combined with onshore capacity, it could help Iran extend storage to about 22 days, according to Kpler analysts. However, satellite data indicates that the amount of oil stored on Iranian ships has reached record levels, with an estimated total of 185-195 million barrels.

Of this, about 60 million barrels are stuck on ships in blockades in the Persian Gulf and Gulf of Oman, while more than 120 million barrels are on vessels near key Asian markets such as Singapore and China.

Before the US seaport blockade took effect on April 13, Iran’s oil exports were largely unaffected by the conflict. Thanks to its control of important maritime routes, the country’s crude oil tankers can still travel freely. As a result, Iran’s oil exports averaged about 1.85 million barrels per day in March, exceeding the 1.7 million barrels in previous months.

After US President Donald Trump enforced the blockade, Iran’s oil exports decreased to about 567,000 barrels per day. During the period April 14-23, only 5 shipments were transported, including 3 shipments at Kharg Island and 2 shipments at Assaluyeh.

Kpler estimates Iran’s crude oil production could fall by more than half from current levels, to 1.2-1.3 million barrels per day by mid-May if the blockade continues. But even then, exports will be difficult to meet at just under 600,000 barrels per day.

When it cannot be exported, oil pumped from fields requires storage, including in tanks, on ships, and in a field storage site. Sanam Vakil, director of the Middle East and North Africa program at Chatham House, said Tehran is hoping to avoid the risk of having to “turn off the oil tap” and cause a serious decline in revenue.

“Closing production will increase pressure, possibly forcing Iran to make concessions in negotiations,” Vakil said.

The first round of negotiations between the US and Iran ended earlier this month with little progress, and prospects for a second round of negotiations also collapsed last week when Iran refused to meet in person with the US delegation. Tehran is said to have made a new proposal to intermediaries to stop attacks in the Strait of Hormuz in exchange for a complete end to the war and lifting the US blockade on Iranian ports.

President Trump on April 27 discussed Iran’s proposal with his national security team. White House press secretary Leavitt said Mr. Trump’s “red lines” toward Iran are still very clear.

Iran is looking for temporary solutions to deal with the blockage of oil export flows. They began using abandoned containers and tanks in southern oil hubs such as Ahvaz and Asaluyeh. Iran is also believed to be using already decommissioned ships to store excess oil. The tanker Nasha was reactivated in mid-April and anchored near Kharg Island to store crude oil.

Hamid Hosseini, spokesman for the alliance of Iranian oil exporters, said the country is also sending oil by train to China, thanks to railway lines connecting Tehran with the cities of Yiwu and Xi’an.

Journeys by rail are generally shorter than by sea, but can still take up to several weeks. In addition, rail transport is not as cost-effective as ocean tankers, especially for small independent refiners in China’s northeast region, the main consumers of Iranian crude.

That makes the effort to shift to rail less of a solution and more of a signal that Iran’s export system is at a standstill. “Desperate times require drastic measures,” said Erica Downs, a Chinese energy policy expert at Columbia University.

Many of Iran’s oil fields, especially those that have been in production for a long time in areas like Khuzestan, need to maintain constant pressure to maintain output.

If Iran is forced to shut down oil wells due to lack of storage, the change in pressure could lead to tank damage and permanently reduce the productivity of oil fields, according to Anmol Singla, an analyst at Firstpost.

“In extreme cases, this could result in the loss of hundreds of thousands of barrels per day of future production,” Singla wrote.

The impact of falling oil revenues is likely to spread beyond the energy sector. Iran must import many essential goods, including agricultural products such as grain, corn and rice. Daily import costs for these products are estimated at 200-250 million USD.

As oil revenues decline, the ability to pay for imported goods also shrinks, contributing to inflationary pressures and widespread economic stress.

The inability to move oil freely has become an important lever for both sides of the conflict. “However, major hurdles still remain. Both sides seem unwilling to make concessions and the prospect of negotiations remains open,” Singla said.