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President Trump’s mid-April blockade of the Strait of Hormuz is largely about forcing Iran’s oil industry to confront the “shut-in date” when its oil storage capability is exhausted and production literally stops.
That would be a dramatic economic development for Iran, as oil wells are difficult to restart and there is a risk of permanent damage.
The White House’s logic is “that the Iranian economy will be under such strain that the political leadership will accept a deal that Trump can announce,” Eurasia Group founder Ian Bremmer wrote in a new note Monday.
The problem is that few know when that deadline will hit — and estimates vary considerably.
Bremmer’s own group has suggested that Iran might have about a month’s time to hold out. Others have suggested that things will come to a head earlier in May. Still others have suggested June as a possibility.
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Trump, as is his wont, offered the most dramatic take when he told Fox News on Sunday that “they only have about three days left [before] it just explodes.”
“You can never rebuild it the way it was,” the president added.
Trump’s rhetoric has implications for ongoing peace talks.
“It appears Trump’s new strategy is to simply wait out the regime,” Tobin Marcus of Wolfe Research wrote in a note to clients on Monday. That is based both on confidence that the US blockade will work alongside Trump’s hesitance to restart a “hot war.”
But a problem for markets is that Marcus’s group estimates that Iran still has up to two months before production shut-ins begin in earnest. He noted the possibility of “a long, painful staring contest” and called Trump’s projection of an imminent explosion “nonsense.”
If this standoff drags out for much longer, Capital Economics said in their own analysis, “policymakers and market participants will find it increasingly difficult to keep ‘looking through’ the crisis.”
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The reason Iranian shut-ins were not an issue in the early stages of the war was that Iran’s own blockade of the Strait of Hormuz pointedly excluded their oil exports.
That meant for about the first six weeks of the conflict, with US acquiescence, Iran was able to export roughly the same amount of oil out of places like Kharg Island and into global markets as before bombs began falling.
