The explosions in and in Tehran, yesterday Thursday 7/5 night, shattered the illusions of an imminent end to the war and showed how quickly it can escalate, even as the adversaries negotiate a solution through diplomacy.
Fire in the Straits and recriminations
The Americans say three of their warships managed to pass through the Straits to the Gulf of Oman despite a barrage of Iranian attacks. All threats have been eliminated, as have their sources, the Pentagon announced.
The Iranians say the conflict began when the Americans hit an Iranian oil tanker and accuse Washington of violating the ceasefire. Both sides describe limited shelling, not generalization of the conflict. What is certain is that the strategically important Straits remain in focus and navigation in the area is anything but free.
Financial strangulation of $5 billion
The American president is negotiating with Tehran and demanding an end to its nuclear program, exerting military pressure while seeking economic strangulation of the regime.
At the end of April, the Pentagon estimated that the first two weeks of the naval blockade of Iran by the US armada had deprived the coffers of the Tehran regime of almost five billion dollars. The blockade continues for a fourth week, and the costs keep mounting for both the stricken regime and the global economy.
Iran’s cannula dilemma
Oil is both a blessing, a curse and the Achilles heel of the Iranian economy. A condition for securing significant income in peacetime, even in wartime, is its constant flow abroad. The American naval blockade, against the closing of the Straits of Hormuz by the forces of Iran, is causing a suffocation in the infrastructure of pumping and storing the “black gold”.
Before the war, Iran’s daily oil production hovered around 4 million barrels. Almost half of the production was intended for domestic consumption and the other half for export, while 98% of the exported quantity passed through the Straits of Hormuz.
Today, Iran does not know what to do with the oil that it must continue to pump in order not to stop the extraction line. The solution is not simple, like closing a cannula. Closing a well requires time and money, and the cost of re-opening it is even greater.
Onshore tanks and tankers in the Gulf that serve as storage facilities for Iranian oil have a total capacity of around 150 million barrels. At the current rate of production, these storage areas will be full by the end of May, as estimated by market players cited by a report in the New York Times. An Iranian source told the US newspaper that steps are already being taken, such as gradually reducing production and shutting down some wells, in order to win the country a 15-day extension before reservoirs overflow.
In other words, at a time when fuel prices are skyrocketing in the rest of the world, Iran is in danger of … drowning in its own oil if the Straits are not opened by early, mid-June at the latest. If there is no diplomatic solution and the US naval blockade is extended, Tehran will have no choice but to close the fields with dramatic effects on the economy and society, such as empty coffers and rising unemployment.
About a million Iranians have lost their jobs due to the US and Israeli bombing of various facilities, inflation is running at 50-60%, the national currency is plummeting, the world’s endurance is running out, and the regime cannot help but take these parameters into account.
Similar problems in the production and storage of oil are faced by the Arab countries that export through the Straits. However, Saudi Arabia and the United Arab Emirates have pipelines that bypass Hormuz, ending up in the Red Sea and the Gulf of Oman respectively.
Iran has a pipeline that bypasses the Straits of Hormuz but ends up in the Gulf of Oman (where the US blockade is enforced), so its other options are limited: exports to Russia via the Caspian in small vessels, tanker convoys to neighboring countries, use of the rail line connecting it to China, via Turkmenistan and Kazakhstan. But these solutions are a drop in the ocean of Iranian oil.
