Assessing Iran’s Ability to Hold the World’s Oil Supply Hostage
Iran’s foreign minister, Abbas Araghchi, announced on March 14, 2026, that Iran considers the Strait of Hormuz open to global shipping with two exceptions: the United States and Israel. According to Araghchi, vessels tied to those countries — or to governments supporting military actions against Iran — will not be allowed passage. He framed the restriction as a response to what Tehran describes as attacks against the country.
The declaration followed U.S. airstrikes on Kharg Island, Iran’s primary oil export terminal and the centerpiece of the country’s petroleum trade. Oil exports remain the backbone of Iran’s economy. In the last fiscal year, the country generated approximately $65.8 billion from crude oil, petroleum products, and natural gas exports. That figure surpasses the roughly $45 billion in projected government revenue for the same period, illustrating how dependent the state budget is on energy sales.
China is by far the largest buyer of Iranian oil, purchasing roughly 80 percent of exports. Beijing has relied on discounted Iranian crude — often priced about eight dollars per barrel below Brent — to lower manufacturing costs. The cheaper oil has helped Chinese producers remain competitive even as profit margins have declined and export volumes have reached record levels.
At the same time, China’s industrial sector has faced growing pressure. The percentage of manufacturers operating at a loss has doubled since 2018, and producer prices have been declining for more than three years.
Although Iran is threatening restrictions on shipping through the Strait of Hormuz, the conflict itself has already reduced Iran’s own export capacity. Since hostilities began on February 28, about 11.7 million barrels of Iranian crude have moved through the strait, all headed to China. Current shipments are estimated at around 1.22 million barrels per day, far below the 2.16 million barrels per day exported in February — the country’s highest monthly level since mid-2018.
Iran does possess another export route at the Jask terminal along the Sea of Oman, which bypasses the Strait of Hormuz entirely. However, the facility is rarely used because it operates far more slowly than Kharg Island. Loading a single very large crude carrier at Jask can take as long as ten days, compared with roughly one or two days at Kharg, making the site inefficient for large-scale exports.
During the recent U.S. operation, more than 90 Iranian military targets on Kharg Island were hit, including naval mine depots and missile storage sites. Oil infrastructure on the island was deliberately left intact. President Trump wrote on Truth Social that he had chosen not to destroy the oil facilities “for reasons of decency,” but warned that the decision could change if Iran interferes with commercial shipping in the Strait of Hormuz.
Kharg Island is critical to Iran’s economy. It handles about 90 percent of the country’s crude oil exports. A CIA assessment from 1984 described the facilities there as the most essential components of Iran’s oil system and vital to its economic stability.
Despite claims circulating online that Iran holds the upper hand in the current confrontation, analysts note that President Trump could severely damage Iran’s economy if he chose to target its oil export infrastructure. Some Iranian social media accounts have promoted the idea that tankers whose cargo is paid for in Chinese yuan would be permitted to pass safely through the strait. Supporters of the Iranian government have portrayed the proposal as evidence of the decline of the U.S. dollar.
In reality, the yuan-based arrangement appears largely symbolic. Although Iranian officials raised the concept, Chinese analysts themselves cautioned against it. No government has formally adopted the system, and ships that have passed through the area have not priced their cargo in yuan.
The United States Navy’s Fifth Fleet, stationed in Bahrain, has already begun operations to counter Iranian threats in the region. At the same time, Iran’s rate of missile and drone attacks has dropped sharply. A report from the Jewish Institute for National Security of America on March 5 estimated that around 75 percent of Iran’s launch systems had been destroyed, contributing to a 92 percent decline in missile and drone launches since the start of the conflict.
These reductions are attributed to American and Israeli strikes against launch sites, underground facilities in Esfahan and Ahvaz, air bases, and production plants tied to Iran’s missile and drone programs.
Iran’s drone capacity remains a concern, however. Prior to the conflict, the country was believed to be capable of producing around 10,000 drones per month. That output could allow Iran to continue harassment operations against shipping in the Strait of Hormuz for an extended period, though current production levels are uncertain. U.S. Central Command has confirmed ongoing strikes against Iranian factories and weapons depots.
Iran was already struggling with a severe energy crisis even before the fighting intensified. The country has experienced frequent electricity outages and disruptions to natural gas supplies. During the summer of 2024, the electricity shortfall was estimated at roughly 14,000 megawatts — about twice the total generating capacity of Azerbaijan.
Infrastructure damage has compounded the problem. A twelve-day conflict in June 2025 damaged oil storage facilities, refineries, and power plants. The year before that, Israel destroyed two major Iranian gas pipelines, interrupting flows that supply roughly 70 percent of the nation’s energy. Because more than 86 percent of Iran’s electricity comes from gas-fired plants, the disruptions have left the power grid particularly vulnerable.
Gas shortages forced Iranian authorities to burn mazut, a low-grade and highly polluting fuel oil, to keep power stations running. When the current war began on February 28, the first U.S. and Israeli strikes targeted both military facilities and elements of Iran’s oil infrastructure, including refineries and export terminals.
By early March, the campaign had entered a second phase focused on Iran’s defense-industrial sector. Missile and drone production facilities were among the primary targets. The Israeli military issued evacuation warnings in Tehran Province for workers near the Abbas Abad and Shenzar industrial zones in Pakdasht, both known for defense manufacturing.
Despite Iran’s threats against shipping, the impact on the United States and Israel themselves is limited. The United States imports about half a million barrels of oil per day from the Persian Gulf, roughly seven percent of its crude imports and about two percent of overall petroleum consumption. Most U.S. imports come from Canada and Mexico instead.
Israel does not import Persian Gulf crude and has no Israeli-flagged commercial ships regularly passing through the Strait of Hormuz. The majority of the oil that travels through the strait is destined for Asian markets. China accounts for roughly 38 percent of the traffic, with India, South Korea, and Japan purchasing much of the rest.
Saudi Arabia has also moved to counter the disruption. On March 11, the kingdom activated the East-West Pipeline at full capacity in response to the situation in Hormuz. Saudi Aramco chief executive Amin Nasser said the pipeline would soon be carrying as much as seven million barrels of oil per day. Ship-tracking data shows dozens of large crude carriers heading toward the Red Sea port of Yanbu, where exports have surged to about 2.47 million barrels per day — more than triple pre-war levels.
Even so, the pipeline does not entirely remove the strategic importance of the Strait of Hormuz. Saudi Arabia exported around 6.3 million barrels of crude daily last year, while Yanbu can process only about 4.5 million barrels per day, leaving a significant portion still dependent on Gulf routes.
The shift toward the Red Sea introduces another potential risk. Oil shipments heading to Asia must pass through the Bab el-Mandeb strait, an area that Houthi forces disrupted in 2023. For now, however, the Houthis have not joined the current conflict.
The pipeline also carries crude oil rather than refined products. Iranian drone attacks forced Saudi Arabia’s Ras Tanura refinery — the country’s largest, with a capacity of about 550,000 barrels per day — to shut down on March 2, leaving refined fuels stranded regardless of pipeline throughput.
Other Gulf states face even greater limitations. Iraq, Kuwait, Qatar, and Bahrain lack alternative export routes. Iraqi southern oil production has dropped sharply, from about 4.3 million barrels per day to roughly 1.3 million. Kuwait has begun cutting production as storage facilities fill with crude that cannot be exported.
American and Israeli forces are expected to continue striking Iran’s missile and drone infrastructure to reduce threats to shipping lanes. Meanwhile, Iran’s own oil exports are already declining and could fall dramatically if President Trump were to order strikes on refineries and port facilities.
While some countries may find ways around Iranian restrictions, the strategy of threatening global oil flows has strained Tehran’s relations with neighboring states. Despite an aggressive propaganda campaign, Iran is unlikely to gain broad international backing.
Overall, the balance of power in the confrontation appears to favor the United States. Iran’s position is becoming more constrained as the conflict continues and as its economic vulnerabilities grow more exposed.
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