Trump’s Blockade Against Iran: Economic Fallout Expected
President Donald Trump’s blockade on Iran seems likely to significantly impact the country’s economy, particularly affecting the funds necessary for the regime to pay its military and enforcers.
The blockade officially commenced at 10 a.m. ET Monday. While the U.S. Central Command (CENTCOM) documented the timing in writing, the military has not yet publicly noted that the deadline has passed.
According to the CENTCOM statement, “The blockade will be enforced against ships of all nations entering or leaving Iranian ports, including those in the Arabian Gulf and Gulf of Oman.”
Importantly, “CENTCOM forces will not hinder the freedom of navigation for vessels traveling through the Strait of Hormuz to non-Iranian ports,” the statement clarified.
CENTCOM also urged vessels in the vicinity to “monitor notifications and to reach out to the U.S. Navy on Channel 16 when nearing the Gulf of Oman or the Strait of Hormuz.”
Previously, Trump cautioned that the U.S. Navy would “search for and intercept any ships in international waters that might pose a threat to Iran.” This warning, however, was absent from CENTCOM’s communication. If the Navy were to intercept all ships paying ransom to Iran for safe passage through the Strait, the blockade could evolve into a much larger and complicated initiative.
On Monday, the UK Maritime Trade Operations (UKMTO) warned seafarers about restricted access to Iranian ports and oil terminals for all flagged vessels along the entire Iranian coastline.
This blockade includes Jask, an oil terminal on the Gulf of Oman that Iran built as an alternative to its main oil link at Kharg Island. Despite significant investment, Jask has yet to significantly contribute to Iran’s oil export capacity.
The UKMTO noted that “Transit navigation through the Strait of Hormuz to other destinations is not reported to be obstructed by these measures, yet military presence and directed communications may be experienced during transit.”
Historically, the “Visit Rights Procedure” would have allowed the U.S. Navy to board suspicions vessels to check for blockade violations.
Neutral ships currently docked in Iranian ports have been granted a limited window to leave.
Miad Maleki, a senior fellow at the Foundation for Defense of Democracies, remarked that the blockade could result in losses of around $276 million in daily export revenue for Iran and disrupt imports by approximately $159 million, totaling an economic loss near $435 million daily or around $13 billion monthly. He highlighted that Iran lacks alternative land or pipeline routes, meaning that only roughly 10% of its non-oil trade can bypass the blockade effectively. While imports may take a hit, “humanitarian cargo” is likely to be exempted.
Maleki noted that Iran’s fuel storage capabilities are limited, currently filled to around 60% capacity. Consequently, the regime may have to begin shutting down oil wells within about 13 days, and these wells can rapidly degrade if not maintained.
He estimated that this forced closure could permanently eliminate production capacity of between 300,000 to 500,000 barrels per day, resulting in a potential revenue loss of $9 billion to $15 billion annually.
The consequences of these losses could be severe for Iran’s already fragile economy. A January uprising was triggered by a drastic decline in the rial’s value, and the blockade is expected to lead to what Maleki terms “apocalyptic hyperinflation.” He noted that Iran has recently issued a 10 million riyal note, worth about $7 in U.S. currency, underscoring the dire economic situation.
“The blockade renders any ongoing resistance economically unfeasible,” he concluded.
The decline in Iranian oil exports will likely have repercussions in global markets, possibly leading to higher gasoline prices and increased inflation for U.S. consumers, although the effect might be limited. For Americans, it’s preferable to take action against Iran than to let the regime control the Strait of Hormuz, which is vital for oil transportation. Reopening this strait could also alleviate shortages of essential fertilizer for farmers worldwide.
Trita Parsi from the Quincy Institute for Responsible Politics mentioned that “any reduction in oil supply will likely escalate prices, which will, in turn, increase gasoline prices.” He warned that if Iran’s Houthi allies in Yemen resume attacks on vessels, oil prices could surge above $150 per barrel.
Some analysts also expressed concerns that even if the Strait of Hormuz is declared “open,” shipping might still shy away from it due to fears of Iranian piracy, thus dampening the anticipated benefits of resuming oil exports from the Persian Gulf.
Interestingly, there are still days left in the U.S.-Israel-Iran ceasefire, making it challenging to fully assess the blockade’s impacts on both Iran and the global economic landscape for some time.
In a separate development, Iranian state media reported that the country had “secured a notable military budget in a short period” after the U.S. Treasury granted temporary permission for Iran to sell crude oil that had been waiting for shipment. This exception was meant to minimize the economic fallout from the closure of the Strait of Hormuz, releasing only about 140 million barrels—insufficient to meet even two days of global demand but still providing Iran with a significant influx of cash.
A report estimates that the revenue from oil sales during this temporary sanction relief might cover half of Iran’s annual defense budget, raising alarms about the regime’s capacity to continue financing its military activities amidst the blockade.
