Iran is running out of space to store unsold oil. Here is why it is a big concern

Iran’s oil sector is confronting an unprecedented challenge as a US naval blockade continues to choke exports, causing crude to accumulate rapidly across the country’s storage network.

Analysts are warning that the country could soon run out of space to store oil — forcing deeper production cuts and potentially triggering long-term damage to its energy system.

According to a Monday (April 27, 2026) report by energy analytics firm Kpler, along with satellite tracking and tanker monitoring services, Iran’s remaining storage capacity is shrinking fast.

At the heart of the crisis is a critical problem: Iran is producing more oil than it can currently export or store.

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How Iran is running out of space

According to industry estimates, the country has between 12 and 22 days of available storage capacity remaining, depending on how much of its infrastructure can be effectively utilised.

Iran’s oil storage system is divided between onshore tanks and offshore floating storage. On land, total capacity is estimated at roughly 90 to 95 million barrels.

As of late April, inventories have surged to around 49 million barrels, reflecting a rapid build-up since the blockade began. This implies that, in theory, about 41 million barrels of storage space remains.

However, this headline figure significantly overstates the usable capacity. Several constraints limit how much crude can actually be stored, reported Kpler. Certain facilities are dedicated to specific types of hydrocarbons, such as condensate, while others are inaccessible due to geographic or operational limitations.

For instance, storage at locations like Sirri and Lavan cannot be used for onshore crude, while infrastructure at Assaluyeh is tied to condensate from the South Pars gas field. Parts of the Bandar Abbas complex are similarly restricted.

When these limitations are factored in, roughly 14.9 million barrels of capacity becomes effectively unusable. This reduces the realistic available onshore storage to approximately 26 million barrels.

At current production and export levels, this translates to around 14 days of capacity.

Even this estimate may be optimistic. Historically, Iran’s storage sites do not operate at full capacity due to safety and technical constraints.

Analysts suggest that a more realistic utilisation ceiling is around 80 per cent, which would further reduce available storage to roughly 8 to 10 million barrels — equivalent to about 12 days of export volumes under normal conditions.

Offshore storage provides some additional flexibility. Iran has access to about 15.4 million barrels of near-term floating storage capacity from tankers currently in the Persian Gulf, including Very Large Crude Carriers (VLCCs) and Aframax vessels.

When combined with onshore capacity, this could extend the storage window to roughly 22 days. Nonetheless, even with these additional buffers, the timeline remains tight.

Satellite data indicates that Iran’s floating storage has already reached record levels, with total offshore holdings estimated between 185 and 195 million barrels.

Of this, around 60 million barrels are effectively trapped within the blockade zone in the Persian Gulf and Gulf of Oman, while more than 120 million barrels are positioned near key Asian markets such as Singapore and China.

How US blockade forced Iran to reevaluate

The US restrictions, which extend beyond the Strait of Hormuz into the waters between the Gulf of Oman and the Arabian Sea, have significantly curtailed Iran’s ability to move crude out of the region.

Before the blockade, Iran’s oil exports were largely unaffected by the conflict. With control over key shipping lanes, vessels carrying Iranian crude were able to transit freely.

As a result, exports averaged approximately 1.85 million barrels per day in March, exceeding the 1.7 million barrels per day seen in preceding months.

This situation changed dramatically this month. Following the enforcement of the US blockade by US President Donald Trump, exports dropped to around 567,000 barrels per day.

The decline has been accompanied by a sharp reduction in crude loadings. Between April 1 and April 13, loadings averaged about 2.1 million barrels per day.

However, in the period from April 14 to April 23, only five cargoes were recorded — three at Kharg Island and two at Assaluyeh — bringing the average down to just 567,000 barrels per day.

Despite claims that dozens of tankers have managed to escape the blockade, analysts report no confirmed cases of vessels successfully exiting the restricted zone.

Several ships have entered the Strait of Hormuz but failed to pass through the blockade further south, often diverting toward alternative locations such as Chabahar in southeastern Iran.

The lack of outbound tanker traffic has also created a shortage of ballast capacity — empty ships needed to load crude for export.

Although there are still a handful of tankers in the region with a history of lifting Iranian oil, their combined capacity is limited, and activity is expected to remain constrained.

How Iran is responding to limited storage

With exports curtailed and storage nearing capacity, Iran has begun reducing oil production.

Analysts estimate that output, which stood at approximately 2.75 million barrels per day prior to the blockade, could decline to between 1.2 and 1.3 million barrels per day by mid-May if current conditions persist.

This would represent a significant contraction in output, with additional cuts of up to 1.5 million barrels per day possible in the coming weeks. The reduction is already underway, reflecting the inability to continue producing oil without sufficient storage or export capacity.

The imbalance between production and exports is stark. Even at reduced output levels of around 1.2 to 1.3 million barrels per day, exports remain below 600,000 barrels per day.

The surplus crude is being directed into storage, accelerating the pace at which capacity is being filled.

Condensate production, however, is expected to remain relatively stable. Strong domestic demand for condensate limits the need for export, allowing this segment of Iran’s hydrocarbon output to continue largely unaffected.

To manage the growing surplus of crude, Iran has increasingly relied on floating storage. This includes the use of tankers as temporary storage facilities, a strategy that has expanded significantly in recent weeks.

Iran is also reportedly bringing older, previously decommissioned vessels back into service to store excess oil. One such example is the tanker Nasha, which was reactivated in mid-April and positioned near Kharg Island to hold crude.

In addition to stationary storage, Iran continues to employ ship-to-ship (STS) transfers, particularly in regions such as the Malacca Strait. These operations are part of a broader effort to move oil through opaque channels designed to bypass sanctions and restrictions.

However, the presence of the US blockade has made such manoeuvres more difficult, costly, and risky.

The accumulation of oil at sea is substantial. Iran currently holds around 184 million barrels of crude in floating storage, with 60 million barrels trapped within the blockade zone and the remainder located near major Asian trading hubs.

Despite this, not all of this oil can be easily sold, reflecting both logistical constraints and weak demand conditions among certain buyers.

How even shutting oil wells could lead to risks

Many of the country’s reservoirs, particularly mature fields in regions such as Khuzestan, require continuous pressure management to maintain output.

If Iran is forced to shut in wells due to lack of storage, the resulting pressure changes could lead to reservoir damage. This includes phenomena such as water intrusion or coning, which can permanently reduce the productivity of oil fields.

In extreme cases, this could result in the loss of hundreds of thousands of barrels per day in future production capacity.

To mitigate these risks, Iran has increased gas flaring across several fields. Satellite data from the Colorado School of Mines indicates a noticeable rise in flaring activity during April, suggesting that operators are attempting to manage reservoir pressure without fully shutting down wells.

While this approach may provide a temporary solution, it is not sustainable over the long term and carries environmental and economic costs.

How this will impact Iran's oil revenue

Typically, it takes around two months for Iranian crude to reach key destinations, particularly in China, which remains the primary buyer. After delivery, buyers often have an additional two months to complete payments.

This means that the full impact of reduced exports may not be felt for three to four months.

Once this lag period passes, the revenue consequences are expected to be substantial. Analysts estimate that the blockade could reduce Iran’s oil-related income by between $200 million and $250 million per day at current prices. This figure includes revenues from crude, petroleum products, and liquefied petroleum gas.

The situation is further complicated by uncertainties surrounding payment channels. A significant portion of Iran’s oil revenues has historically flowed through financial systems in the United Arab Emirates.

However, recent indications suggest that access to these channels may be tightening, potentially limiting Iran’s ability to fully realise its earnings.

The impact of reduced oil revenues is likely to extend beyond the energy sector. Iran relies heavily on imports of essential goods, including agricultural commodities such as grain, corn, and rice.

Daily import costs for these products are estimated at around $200 million to $250 million.

A sustained decline in oil income could therefore constrain Iran’s ability to finance these imports, contributing to inflationary pressures and broader economic strain.

Additionally, curtailing production carries its own costs. Maintaining oil fields in a reduced-output state can increase operational expenses, squeezing margins at a time when revenues are under pressure.

What next

Reports indicate that discussions are taking place regarding potential measures to ease restrictions, including proposals linked to reopening key shipping routes.

Recent actions by US authorities suggest an awareness of the global market implications of the blockade. A temporary waiver was introduced to allow limited volumes of Iranian oil already in floating storage to reach Asian markets, with the aim of preventing a sharp spike in global oil prices.

At the same time, the effectiveness of the blockade in restricting Iran’s exports has added pressure on Tehran in diplomatic negotiations. The inability to move oil freely is emerging as a key point of leverage.

However, significant hurdles remain. Both sides appear reluctant to concede ground, and the outcome of ongoing talks remains uncertain.

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With inputs from agencies