US Blockade Succeeds Where Sanctions Failed: Iran's Oil Exports Stall

The United States has succeeded in cutting off Iran's main source of foreign-currency earnings by enforcing a naval blockade through the Strait of Hormuz, according to Reuters. For the first time on record, Iran has gone about seven weeks without shipping meaningful crude exports through this key waterway.

Unlike previous sanctions campaigns, when Iranian crude continued reaching buyers despite restrictions, the current blockade has stopped fresh crude cargoes from reaching China, Tehran's only major remaining oil customer. This is increasing pressure on government finances and foreign-currency reserves.

Kpler, Vortexa, and TankerTrackers.com estimate that no Iranian crude cargoes have successfully transited the Strait of Hormuz to China since July 14, when the US reinstated its blockade as part of a six-month conflict. As a result, Iran can only sell crude to China from floating storage in Asia, which it cannot replenish as crude accumulates aboard tankers inside the strait.

Iran loaded about 220,000 to 255,000 barrels per day of crude oil and condensate in August, down from roughly 740,000 bpd in July and about 2 million bpd in March. The collapse in exports is draining one of Iran's main sources of foreign-currency income and could force Tehran to finance spending by printing money, risking even higher inflation.

Vortexa analyst Claire Jungman said that 'even at the height of maximum-pressure sanctions in 2019-20, some Iranian crude cleared Hormuz every single month; at no point did outbound flows fall to near-zero for a sustained stretch as they have since mid-July.' The International Monetary Fund estimates Iran's inflation rate at nearly 70% this year, the world's third-highest after Venezuela and Sudan.