Iran's "Hormuz card," pulled out to pressure the United States, is backfiring. Iran sought to jolt the international energy market and force concessions from the United States by restricting traffic in the Strait of Hormuz, through which one-fifth of the world's crude oil and liquefied natural gas (LNG) once passed. But while the energy market secured alternative supplies, Iran's crude exports, a key lifeline, have plunged under the U.S. naval blockade. On top of that, the United States has tightened financial sanctions on Iran, making it harder to obtain foreign currency.
According to Reuters and the Wall Street Journal (WSJ) on the 7th, local time, U.S. and Gulf officials believe the damage Iran is inflicting on itself now exceeds the economic harm to its counterparts. Arash Azizi, an Iranian American and associate professor of history at Clemson University, told Reuters that "the balance of power has tilted somewhat against Iran," noting that Iran's inability to completely close the Strait of Hormuz has weakened some of the leverage it had over the United States.
Since late February, when the war began, Iran has restricted ship traffic in the Strait of Hormuz. The aim was to choke off a key chokepoint in global energy supply, push up oil prices, and extract concessions from the United States. However, as the global energy market adapted by securing alternative sources, Iran's pressure had less impact than expected. By contrast, Iran began to struggle to sell its crude on the global market because of the U.S. naval blockade.
◇ Iranian crude can't cross the blockade line… China's stockpiles also fall
Iran's crude exports took a direct hit after the United States resumed its naval blockade on July 14. According to oil-market analytics firms Kpler and Vortexa and TankerTrackers.com, since that date there have been no confirmed cases of newly loaded Iranian crude shipments exiting the Strait of Hormuz and heading to China. China is currently Iran's only remaining major crude customer.
Iran's crude and condensate loadings fell from about 2 million barrels a day in March to 740,000 barrels in July, and to 220,000–255,000 barrels in August. That is a roughly 87%–89% drop in five months. This contrasts with 2019–2020, when the Donald Trump administration imposed "maximum pressure" sanctions on Iran but some Iranian crude still exited the Strait of Hormuz each month. Vortexa said there was no precedent for such a prolonged near-halt in flows as seen this time.
China can keep buying Iranian crude for now because Iran pre-positioned volumes outside the blockade line during the weeks when the U.S. blockade was paused after the United States and Iran signed a memorandum of understanding (MOU) in June to end the war. Citing Kpler, the WSJ reported that about 29 million barrels of Iranian crude remain on ships outside the blockade line. If the current pace of about 1 million barrels a day heading to China and elsewhere continues, the remaining volumes could be exhausted around mid-October.
In particular, with no new volumes exiting the Strait of Hormuz, pressure is also building on China's refining sector. The "teapot" private refiners in Shandong, major buyers of Iranian crude, are expected to face difficulties securing new supplies from late this month. The industry says they may switch to Brazilian, Iraqi, or Russian grades or lower run rates starting next month.
◇ Blocking crude and squeezing proceeds… the U.S. throws a "one-two punch"
The United States is combining financial sanctions with the naval blockade to pressure Iran. In addition to physically stopping crude shipments, it is shutting the financial channels that would carry proceeds from already-sold oil and foreign currency back to Iran. U.S. Treasury Secretary Scott Bessent called it a "one-two punch" combining the naval blockade with "the most powerful sanctions in history."
Three senior Iranian sources told Reuters that recent U.S. measures have severely restricted access to foreign currency, imports of goods, and use of international financial networks. With oil revenue accounting for about one-third of Iran's national budget, concerns are rising about shortages of key items such as fuel and wheat. On top of that, the rial has weakened and import prices have climbed. The International Monetary Fund (IMF) projects Iran's consumer price inflation this year at 68.9% and real gross domestic product (GDP) growth at -5.4%.
Amid this, the United States is continuing military pressure. On the 5th, U.S. forces attacked three Iranian oil tankers. One of them was near Kharg Island, a key hub for Iran's crude exports.
That said, Iran's "Hormuz card" has not been completely neutralized. As the United States and Iran have resumed trading attacks, the average number of bulk carriers passing through the Strait of Hormuz over the past 10 days fell to 10 a day, the lowest since May. International oil prices on the 7th rose to the highest level in about six weeks.
Iran also appears to be ratcheting up pressure. Senior Iranian security official Mohsen Rezaei said Iran would set new restricted areas in the Gulf and announce a new shipping lane through the Strait of Hormuz. Parliament Speaker Mohammad Bagher Ghalibaf also warned that if the United States further attacks Iran's asset, U.S. oil and gas facilities in the Gulf region could also be exposed to attacks.
With the United States maintaining the blockade and Iran signaling new restricted zones, tensions between the two sides over the Strait of Hormuz are expected to continue for the time being.