JP Morgan has warned that Iran’s oil production could be slashed in half and oil exports could virtually stall if U.S.-Israeli seize Iran’s Kharg Island, worsening the ongoing global oil shock. Located in the Persian Gulf, the continental island is the “backbone” of Iran’s oil infrastructure, handling approximately 90% of its crude exports.
The island collects oil transported via pipeline from Iran’s largest producing fields, including Marun, Ahvaz and Gachsaran. Iran–OPEC’s third-largest producer–pumps about 3.3 million barrels of crude and an additional 1.3 million barrels of condensate and other liquids per day.
Oil prices have surged to near-pandemic levels, with Brent crude for April delivery up 5.7% to trade at $98.13 per barrel at 12.06 p.m. ET, while the corresponding WTI crude contract was up 4.84% to change hands at $95.30 per barrel.
“A direct strike would immediately halt the bulk of Iran’s crude exports, likely triggering severe retaliation in the Strait of Hormuz or against regional energy infrastructure,” JP Morgan said.
According to JP Morgan, cited by Arab media, Iran ramped up exports from Kharg Island in the days leading up to attacks by U.S. and Israel to near record levels in excess of 3 million bpd, nearly triple its normal clip at 1.3 million to 1.6 million bpd. According to Kpler, the island’s storage capacity is roughly 30 million barrels of crude, with current storage at approximately 18 million barrels, enough for 10-12 days of exports under normal conditions.
A seizure or direct attacks on Khrag Island would be unprecedented. Former U.S. president Jimmy Carter imposed sanctions on Iran during the hostage crisis of 1979, but did not order strikes on the island. Ronald Reagan, Carter’s successor, targeted Iranian vessels and missile batteries while protecting ships during the 1980s Iran-Iraq Tanker War but also refrained from attacking the island. Similarly, Iraqi forces did not hamper operations at the island during the war.
“Although Iraqi forces struck some terminals and tankers during the eight-year war, Kharg remained largely operational and damage was typically repaired quickly, demonstrating that disabling it would require sustained, large-scale attacks,” JP Morgan said.
By Charles Kennedy for Oilprice.com
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