Why Iran Isn’t Blinking Yet
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In a way, the impasse between the United States and Iran over the still-closed Strait of Hormuz boils down to storage.
The Trump administration believes that the two-week-old, semi-porous U.S. blockade of Iranian shipping will soon bring Tehran to its knees by forcing it to shut down oil wells as it runs out of storage space for crude it can no longer ship. That looming production shutdown, the administration believes, threatens Iran with permanent, severe damage to a major part of its economy, and explains why Washington appears content to wait for an Iranian surrender that has yet to materialize in the eight-week war.
In a way, the impasse between the United States and Iran over the still-closed Strait of Hormuz boils down to storage.
The Trump administration believes that the two-week-old, semi-porous U.S. blockade of Iranian shipping will soon bring Tehran to its knees by forcing it to shut down oil wells as it runs out of storage space for crude it can no longer ship. That looming production shutdown, the administration believes, threatens Iran with permanent, severe damage to a major part of its economy, and explains why Washington appears content to wait for an Iranian surrender that has yet to materialize in the eight-week war.
Iran is aware of the challenge and is scrambling to find places to stash its crude as its oil exports have fallen by three-quarters since the U.S. blockade began. But Tehran has been through this several times before, with severe U.S. sanctions pressure from the Obama and Trump administrations leading to production shutdowns—and neither one led to lasting damage to the country’s oil fields. And Iran is still loading and exporting oil despite the U.S. blockade.
Meanwhile, U.S. Gulf allies already are in month two of their own production shutdowns, which are much larger collectively than anything Iran might face. That, coupled with the rising price of oil and the steady trickle of renegade tankers that continue to bring Iranian oil to market, is a significant part of why Tehran is not blinking yet. Oil in the United States rose to over $100 a barrel on Tuesday, and the global benchmark topped $111 a barrel.
Forcing Iran to curtail oil production—with potentially severe and lasting consequences—is the whole rationale behind the administration’s blockade, which was put into place on April 13.
U.S. President Donald Trump said over the weekend that Iran’s imminent shutdown of oil production will make its oil lines explode, and “when it explodes … you can never rebuild it the way it was.” U.S. Treasury Secretary Scott Bessent predicts that a production shutdown will trigger domestic gasoline shortages in Iran, and presumably greater internal pressure on the country’s regime. The Foundation for Defense of Democracies, which has long advocated an aggressive policy toward Iran, has argued that prolonged shutdowns of Iranian oil fields will cripple a significant portion of their capacity and increase financial pressure on the (already unpopular) regime.
And two weeks into the U.S. blockade, Iran is running low on oil storage. It has taken out of mothballs an old oil tanker that could act as temporary floating storage. It is searching for additional onshore storage tanks that can complement the main facilities on Kharg Island. It has taken advantage of a handful of returning, empty tankers that slipped through the U.S. blockade to store some there. But this is a challenge Iran has been facing, and meeting, for decades.
“Are they close to having to shut in production? No, tankers are still coming and going from Kharg Island, and they still have some onshore storage,” said Gregory Brew, a senior analyst for Iran and energy at the Eurasia Group. Iran has resorted to using old tankers in the past as well. “That would suggest to me that they are preparing for the blockade to bite, but I don’t think it is biting yet. Traffic is still moving for Iran.”
But Iranian oil tankers are apparently piling up just outside the Strait of Hormuz and venturing no further. If the U.S. blockade continues and tightens, then Iran likely will hit a hard limit on the amount of oil it can continue to produce. And then the oil field shutdowns would begin. But they may not be as damaging as administration officials hope.
In 2012-13 and again in 2019-20, Iran dealt with sanctions pressure that sharply curtailed its oil exports and led to managed reductions in its oil output. But it did not spell long-term lasting damage to Iranian oil fields.
The National Iranian Oil Company “has done this twice before. They have shut-in expertise, and the oil fields would be the fields that had been shut before. The officials are the same, and they are experienced enough that they know what to do,” said Brew, though he acknowledged that a rapid, forced shutdown of production at older oil fields could risk some long-term damage to the reservoir, and thus to future production capacity.
On the other hand, those previous episodes did not feature a full-on U.S. blockade, and there were more options for floating and onshore oil storage. Especially with older oil fields like those in Iran, the risk of shutdowns is that water creeps back into the reservoir and sharply limits future recovery rates.
“As storage approaches capacity, Iran will first reduce production rates to buy time and minimize reservoir damage. If the blockade persists, cuts become inevitable,” said Alexandre Araman, the director of Middle East Upstream at Wood Mackenzie, an energy consultancy.
Iran’s older oil fields, he said, are “susceptible to water breakthrough, risking long-term damage from shut-ins exceeding one month. Iran may employ rotational shut-in strategies, cycling wells offline to preserve reservoir integrity. Even so, full recovery remains uncertain given the maturity of the asset base.”
The reason this math may not provide a way out of the impasse for the Trump administration is that U.S. allies in the Gulf already have a lot more oil production shut down and face some of the same concerns about long-term damage as the war drags on. Collectively, Saudi Arabia, Iraq, Kuwait, the United Arab Emirates, and Qatar have shut in more than 11 million barrels a day of oil production, Araman said.
“Iraq stands out. Even if the strait reopens next month, oil production is likely to recover to only about 85 percent of prewar levels by year-end, with full recovery not expected before 2028. Some wells are likely to suffer permanent damage,” he said.
On Tuesday, the UAE said it would leave OPEC next month, a major rupture that will give the Emirates more freedom to put additional barrels of oil on the market in the future, but which will leave the oil-exporting cartel with less ability to manage future supply shocks.
Ultimately, although the race between oil storage and oil production is driving the immediate future of the U.S.-Iran cease-fire process, there may be other factors that are more important, Brew said.
The U.S. and Israeli decapitation strikes on Iran’s previous leadership have left the hard-line Islamic Revolutionary Guard Corps (IRGC) as the most powerful single group in Iran. The IRGC has its own sources of revenue after years of building regional smuggling networks and expanding throughout the Iranian shadow economy, and is less concerned about domestic fuel prices and popular unrest than technocratic or pragmatic leaders might be.
“Even if the economy collapses, the IRGC is OK, and they are the ones doing the negotiating,” Brew said. “The IRGC is very resistant to economic pressure. For hard-liners, this will feed their resolve, and their idea that resistance is what matters.”
This post is part of FP’s ongoing coverage. Read more here.
Keith Johnson is a staff writer at Foreign Policy covering geoeconomics and energy. Bluesky: @kfj-fp.bsky.social X: @KFJ_FP
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