Iran’s oil ‘storage crunch’ unlikely to trigger shutdowns — markets may be overplaying the risk

At a time when global oil markets are gripped by fears of a near-term supply shock from West Asia, a closer look at Iran’s oil system suggests the widely cited “storage crunch” narrative may be overstated.

A US naval blockade of Iranian ports since mid-April has sharply curtailed exports, causing crude to accumulate rapidly onshore and offshore. Data from analytics firms Kpler show Iranian crude loadings plunging from about 2.1 million barrels per day (bpd) before the blockade to roughly 567,000 bpd in recent weeks.

With inventories swelling and storage capacity finite, analysts and officials have warned that Iran could hit “tank tops” within days, forcing abrupt production shutdowns that risk permanent damage to ageing oil fields.

But industry trackers and historical precedent tell a more nuanced story.

Storage pressure is real — but not absolute

Iran’s onshore storage is estimated at roughly 86–95 million barrels, with inventories already approaching 49 million barrels. Add floating storage, including tankers idling in the Gulf, and total capacity expands further, albeit with logistical and financial constraints.

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Even so, the idea that Iran is on the brink of an unavoidable shutdown ignores operational flexibility within its oil system.

Satellite imagery and field reports indicate Tehran is already deploying a range of stop-gap measures: reviving disused tanks in hubs such as Asaluyeh, using improvised “junk storage”, and leaning more heavily on floating storage. According to multiple reports, there are also attempts, albeit inefficient, to move crude via rail to China.

The domestic buffer

One of the most underappreciated factors is Iran’s refining capacity.

According to energy analysts, Iran has the ability to process close to 2 million bpd domestically — broadly in line with current production levels seen during past sanctions cycles.

“The ongoing narrative that Iran's oil storage will fill up ASAP and cause production to shutter is wrong,” TankerTrackers said in a post on X, adding that “if we look back to the Trump 1.0 era, Iran scaled back production to just under 2Mbpd.”

“The fact is that they can refine that entire amount of oil just for domestic consumption,” TankerTrackers said.

Production cuts don’t equal system failure

Even under pressure, production declines are likely to be gradual and managed, not abrupt.

Goldman Sachs estimates Iran has already curtailed output significantly, while Kpler projects production could fall to 1.2–1.3 million bpd by mid-May if constraints persist.

But such reductions are often pre-emptive. Oil operators typically cut output before storage is fully exhausted to maintain system integrity and avoid dangerous bottlenecks.

More importantly, not all production cuts translate into long-term damage. While Iran’s ageing fields are indeed vulnerable, the country has decades of experience managing output under sanctions, including rotating shutdowns across fields to minimise reservoir harm.

The timeline may be longer than markets assume

Much of the current market anxiety is being driven by aggressive timelines, with some claims suggesting Iran could run out of storage within “days”.

However, even more conservative estimates point to a remaining buffer of around 12 to 22 days under current conditions.

That timeline can be extended through a mix of measures, including the use of floating storage, higher domestic refining runs, and calibrated production cuts.

Tehran is also exploring logistical workarounds such as rail shipments, even if these are less efficient than seaborne exports.

The upshot is that Iran is not facing a simple “store or shut” moment, but a continuum of adjustments that can delay any hard stop.