Iran is accumulating a significant amount of crude oil on tankers at sea, with over 46 million barrels currently stored on vessels in Asia. A large portion, nearly 80%, of these ships are anchored in the Singapore Strait and off the Chinese coast. This floating stockpile, alongside substantial onshore inventories in China, is intended to provide a cushion for Chinese independent refiners, known as "teapots", in case of a US blockade of the Strait of Hormuz. For instance, in April, about 38 million barrels of Iranian oil were on vessels in Asia, with over a third in the Yellow Sea off China. China has also been rapidly building its onshore crude reserves, including for strategic storage, buffering the global market from supply disruptions.
The context for this strategy is the tightening US naval blockade in the Strait of Hormuz, which has severely impacted Iran’s oil exports, causing them to plunge in recent weeks. As a result, Iran's storage facilities are rapidly filling up, prompting the country to curb oil production. Despite these challenges, Iranian officials suggest the country has prepared for such scenarios for decades. However, the situation presents a "game of chicken" between Iran and the US, with analysts noting that Iran's revenue could eventually be hit by up to $250 million per day if the blockade continues, although the full impact might take three to four months to materialize.
While a significant portion of Iran's oil is stuck behind the US blockade, particularly 60 million barrels in the Persian Gulf and Gulf of Oman, Iran has also been able to increase the amount of oil openly shipped through the Strait of Hormuz to its highest levels since the conflict began, as diplomatic efforts for a peace deal progress. Approximately 6 million barrels were recently noted on three US-sanctioned supertankers heading towards waters off Singapore, a common transfer point for Iranian crude en route to China. This indicates a dual strategy of stockpiling and attempting to maintain export flows where possible, leveraging pre-sold oil to countries like China and Malaysia to create a financial cushion outside the immediate conflict zone. Iran anticipates that this storage strategy, utilizing aging tankers as floating facilities, will delay the need to reduce production significantly, a move that could permanently damage its oil infrastructure and result in substantial daily revenue losses, estimated by some analysts at around $170 million per day.
