(Photo by SAUL LOEB / AFP via Getty Images)
AFP via Getty Images
The Iran war seems to have devolved into a waiting game. Last month, after weeks of Iranian threats to energy transit in the Strait of Hormuz, the Trump administration flipped the script and imposed a blockade on the Strait to counteract Tehran’s efforts to manipulate the waterway. Since then, the status of the Strait – through which a fifth of global energy passes – has effectively been frozen, even as the Iranian regime has taken steps (like establishing a new maritime authority to extort transiting vessels) to tighten its grip there.
This state of affairs has led many to conclude that the conflict has become a stalemate of sorts – or, worse still, that the United States has already lost outright. Perhaps the most extreme example of this came from Robert Kagan of the Brookings Institution, whoopined recently in the pages of The Atlantic that Trump had effectively suffered a “total defeat” at the hands of the Iranian regime – and that that “checkmate” will be catastrophic for America’s long-term credibility.
Kagan might eventually be proven right. For the moment, though, his gloomy diagnosis is decidedly premature, and the economic realities tell us why.
Energy exports are the lifeblood of the Iranian regime, accounting for some 15-20 percent of the country’s total GDP. Before the blockade was imposed, Iran was producing and shipping an estimated 2.1 million barrels a day. The U.S. blockade has now slashed that output by approximately 75 percent, a constriction that experts say is costing the regime on the order of $159 million per day, or $13 billion per month.
It has also put the Iranian regime on the horns of a serious dilemma, because the country is now pumping considerably more oil than it can export. It needs to find a way to store the oil it is producing, or it will be forced to reduce its production. In extremis, the Iranian regime will be forced to “cap” at least some of its active oil wells – a process that can cause long-term damage and is difficult to reverse.
That realization has, in recent weeks, set off a scramble on the part of the Iranian regime to find suitable storage, an effort that has entailed everything from reactivating old storage facilities to jury-rigging vacant tankers to serve the purpose. It has reportedly even begun pumping oil into the sea in a desperate bid to keep its oil wells functional.
The trendline, however, is clear. Some analysts have argued that Iran still has some time before the situation becomes dire, but the White House is decidedly more bullish. In a recent interview with CNBC, Treasury Secretary Scott Bessent made the case that the Iranian regime had already effectively run out of storage capacity. Even so, it’s reasonable to expect this economic strangulation strategy to require additional time.
That’s why coming days are likely to see the White House try and accelerate the process with a renewal of its military campaign against Tehran. If it does so, the objectives will be clear: to remove Iran’s excess oil storage capacity, to disrupt the regime’s vital infrastructure, and to target hardline elements of the political leadership opposed to negotiations with Washington.
To be sure, President Trump has pressures of his own to contend with. There are growing rumblings of political discontent in Congress, and the President’s political base is justifiably worried that if the war drags on for too much longer it will have a significant effect on already glum Republican prospects in the upcoming midterm elections. For the moment, however, those sentiments are at least partially tempered by the realization on both sides of the political aisle that leaving Iran in a dominant position atop the Strait of Hormuz (and therefore global energy markets) is a recipe for disaster.
That, in turn, is likely to give the Administration a bit of breathing room to allow its blockade to truly bite – and at least some latitude to ratchet up its pressure on the Iranian regime in other ways as well. With so much at stake, we can expect the White House to seize the moment.