Iran Blockade… Two Weeks or Two Months?

Last week, President Trump imposed a blockade on Iranian ports. This maneuver countered Iran’s restrictions on ships passing through the Strait of Hormuz, under which Iran would seek tolls in exchange for safe passage.

CBC’s Mike Crawley reasonably argues that the US-Iran war has become a pain endurance test. Iran’s economy suffers because its oil exports are limited. The US economy, as well as the global economy, suffers due to high oil prices, as shipping from the Persian Gulf has slowed to a trickle.

A critical question in this battle of wills is how long Iran’s regime can survive without oil exports via sea. Not surprisingly, amidst the fog of war, there are diverse opinions on the matter. Crawley’s article cites Miad Maleki, who penned an article claiming that Iran had critically limited oil storage capacity, so that after about 13 days of a naval blockade Iran would be forced to shut down oil wells. A forced shutdown would also reduce the future productivity of oil wells; Maleki suggested possible future annual losses of $9-$15 billion. On the other hand, a Reuters article by Ahmad Ghaddar cites a note from FGE NextantECA that claims Iran has much greater crude oil storage  capacity—enough to last two months, or even three months with a modest production cut.

Whether Iran can comfortably ride out a naval blockade for two weeks or two months is obviously a critical question that should impact its negotiations. In addition to that vital unknown, we also have the uncertainty as to how effective the blockade is—whether some tankers are able to run the blockade—and the unknown as to how other countries will react. China is a major purchaser of Iranian oil, and should the blockade persist, may respond to the circumstance in which it is not receiving the oil it contracted for. For now, though, both the United States and Iran are maintaining the status quo, oil prices remain relatively high by historical standards, and markets have taken the conflict in stride, with the S&P 500 setting new record highs.

JMS Capital Group Wealth Services LLC

417 Thorn Street, Suite 300 | Sewickley, PA | 15143 | 412‐415‐1177 | jmscapitalgroup.com

An SEC‐registered investment advisor. 

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.