Blockade drains Iran's Asian oil stockpiles, WSJ says

Non-Iranian Gulf crude is making up for the barrels Iran no longer ships, with those cargoes moving through the Strait of Hormuz at volumes above prewar levels while under US protection. That is why the emptying of Iranian inventories does not, on its own, amount to a fresh supply shock. Instead, the near-term impact is a reordering of trade routes: Chinese buyers — especially independent refiners that had depended on discounted Iranian crude — are turning to Brazil and West Africa, a shift that may tighten crude grades in the Atlantic Basin and push their premiums higher. The larger danger lies in escalation. With Tehran’s main income stream blocked, its economic options shrink and its incentive to use energy disruption as leverage grows, sustaining a geopolitical risk premium in oil. A strike on Gulf energy installations or tanker traffic would cut physical supply, not just sentiment.

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Earlier:

• New York Times reports the US and Israel have specific renewed strikes on Iran planned after the US midterms

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Iran’s floating oil stash parked off Southeast Asia has been drained, and the country’s wartime economy is now left without its largest source of cash and with few viable alternatives.

Summary:

• Ship-tracking analysts cited by the Wall Street Journal say the US naval blockade had fully drained Iran’s offshore crude reserves in Asian waters by mid-October.
• The blockade has cost Iran at least $25 billion in oil revenue, US Central Command says, hampering the replacement of weapons and factories.
• About 30% to 40% of Iranian government revenue comes from oil sales, which also provide the country with most of its foreign currency.
• After peaking at close to 90 million barrels, the floating reserves dropped below 1 million barrels by October 5.
• More and more, Chinese refiners are looking to other suppliers such as Brazil and West Africa.
• Gulf oil exports from non-Iranian producers have lately run above prewar levels, with US protection covering shipments via the Strait of Hormuz.

The crude Iran holds on tankers in Asian waters has been used up under the US naval blockade, leaving Tehran without a key source of money during the war, the Wall Street Journal (gated) reported.

According to ship-tracking analysts, the offshore inventories, concentrated near Malaysia and Singapore, had been completely used up by mid-October after the blockade prevented Iran from topping up the crude it normally sells to Chinese refineries. US Central Command puts the revenue denied to Iran by the blockade at no less than $25 billion, saying that would limit Tehran’s capacity to replace destroyed weaponry and factories.

That floating storage sat inside a long-standing arrangement through which Iran shipped oil to China in defiance of US sanctions. Vessels linked to Iran would bring crude to waters near Malaysia and Singapore, where it was loaded onto other ships heading for Chinese refineries, which made the trade harder to follow.

Iran had roughly 135 million barrels stored overseas when the war started in February, a cache likely worth $10 billion or more after the jump in oil prices. Tehran continued selling from that inventory after the US imposed its first blockade in April. The blockade was lifted in mid-June during peace talks, and Iran moved more crude out quickly, bringing stocks back up to a peak of nearly 90 million barrels before the blockade returned in mid-July. Analysts say reserves had slipped below 1 million barrels by October 5 and have been fully drawn down since then. Other tracking firms saw similarly steep falls, with one putting the volume off Singapore at around 6 million barrels as of October 9.

Oil exports contribute about 30% to 40% of Iranian government revenue and make up the nation’s biggest source of foreign currency. Since early July, the country’s currency has fallen roughly one-third against the dollar, helping drive rapid inflation. Payments from Chinese buyers can take about two months to arrive, so Tehran could still collect some money from earlier deals over the weeks ahead. Overland transport such as trucking, analysts say, cannot substitute for sales delivered by sea.

Chinese refiners are leaning more heavily on other suppliers, among them Brazil and West Africa. At the same time, crude from other Middle East producers has recently topped prewar levels, with US protection helping to safeguard non-Iranian cargoes moving through the Strait of Hormuz.

Last week, central bank governor Abdolnaser Hemmati said the economy had proved resilient and dismissed assertions that it is collapsing. Iran has so far beaten forecasts that the blockade would drive it to nuclear concessions, analysts note.