What lies ahead for Iran’s economy as scope of US war grows beyond Hormuz?
Mediation efforts continue but uncertainty remains as risks of further disruptions in international waterways grow. Iran says progress made in talks with Oman on Strait
Mediation efforts continue but uncertainty remains as risks of further disruptions in international waterways grow. Iran says progress made in talks with Oman on Strait of Hormuz Tehran, Iran – Iran and the United States have returned to mediated talks, and their military action is temporarily suspended, but the war continues to impact international maritime corridors beyond the Strait of Hormuz as well as domestic markets. The near-total closure of the strategic waterway, disruptions in the Red Sea by the Iran-aligned Houthis in Yemen and Ukraine attacking an Iranian vessel in the Caspian Sea have all kept tensions high. Iran’s government is also facing more tough choices, including a potential fuel price hike amid high social and economic discontent, as the US military enforces a naval blockade of the country’s southern ports for a second time. The Ministry of Petroleum said on Saturday that Iran has sold $11.5bn of crude oil during the war without specifying the exact dates and $6.5bn during the period of the now-suspended memorandum of understanding (MoU) signed with the US last month. It said the combined figure represented 60 percent of the full-year oil revenue target in the budget. The signing of the June 17 MoU led to the partial reopening of the Strait of Hormuz and lifting of the US naval blockade on Iran, which eased some of the pressure on global oil markets and allowed Iran to export oil stored on supertankers waiting to sail from its territorial waters. Iran’s Petroleum Ministry said increased oil prices generated about $3bn in additional value in the first half of the year and $11bn from the yields has so far been transferred to government coffers despite US embargoes. During the previous blockade that was imposed on April 13 and lasted a little over two months, Iranian authorities attested to near-zero crude exports. A prolonged second blockade risks further reducing Iran’s export revenues and piling pressure on Kharg Island, through which about 90 percent of Iran’s crude oil exports pass, and other Iranian storage and export sites, which could in turn affect production at petrochemical plants and make an eventual restart costlier and slower.
The US military’s Central Command (CENTCOM) said that as of Saturday, soldiers had redirected 12 commercial vessels trying to run the blockade that has been in place since mid-July, disabled two that did not comply and boarded two “to ensure total compliance”. The US military also showed footage of heavily armed soldiers rappelling down from a helicopter onto the deck of the Charminar, an Iran-linked oil tanker subject to US sanctions since last year for allegedly being part of the Shamkhani network. The US says Iranian oil magnate Mohammad Hossein Shamkhani plays a central role in Iranian and Russian shadow fleet operations. Iran has also said it has been redirecting multiple ships each day to keep the strait closed as its armed forces emphasised that they will not bow to pressure. On Sunday, Iranian media reports said a vessel blew up after hitting a naval mine in the Strait of Hormuz. Still, CENTCOM has stopped extensive bombing strikes against Iran for two nights with US Ambassador to the United Nations Mike Waltz saying President Donald Trump is giving talks with Tehran “some space”. Iran has also stopped retaliatory attacks across the region while Ministry of Foreign Affairs spokesman Esmaeil Baghaei said discussions with Oman on reopening the Strait of Hormuz have been productive. The domestic picture The oil export constraints, however, are still adding to Iran’s existing economic woes, which are linked to domestic structural issues and mismanagement as well as years of harsh sanctions. Iran’s infrastructure has also suffered significant damage during the war launched by the US and Israel in late February and may fare worse if the conflict escalates. The government said last month that about 230 million cubic metres (300 million cubic yards) per day of Iran’s pre-war natural gas output of roughly 650 million cubic metres (850 million cubic yards) was lost due to US and Israeli bombing, worsening electricity and petrochemical shortages. Sekhavat Asadi, managing director of the Pars Special Economic Energy Zone, said on Sunday that Iran expects to restore more than 100 million cubic metres (130 million cubic yards) per day of that lost production capacity within the coming months.
The BriefWire