Iran struggling with a surplus problem as oil production on Kharg Island creates storage issues

Tehran: Since the outbreak of hostilities between the United States and Iran, fuel supplies through the Strait of Hormuz have come to a standstill. At the onset of the conflict, Iran began launching attacks on oil tankers, effectively halting maritime traffic through the strait. Meanwhile, a US blockade further exacerbated the situation.

This has triggered a fuel crisis in numerous countries that rely on oil imports. Even Iran itself is now facing a major predicament—though, ironically, this crisis stems not from a shortage of oil, but from an 'excess' of it. In fact, due to the disruption in supply, Iran has accumulated such a massive stockpile of oil that it has run out of storage space. Reports claim that Iran is now storing this surplus oil in "dead tankers".

According to reports, while Iran cannot abruptly halt oil production—as doing so could cause irreparable damage to its oil wells—its export operations have ground to a near-total halt due to international sanctions and the U.S. blockade in the Strait of Hormuz. Consequently, crude oil is accumulating at an alarming rate. Faced with this dilemma, Iran has devised a temporary solution to accommodate the surplus: it is now storing the oil at sea.

Why Use "Dead Tankers"?

The report reveals that Iran has reactivated one of its 30-year-old tankers, the 'Nasha'. This vessel had been lying idle for several years, but it is now being utilized as a "floating storage" facility at sea to house the oil that cannot currently be exported.

Why Does Iran Have a Window of Just 12–13 Days?

It is worth noting that over 90 percent of Iran's total oil output originates from Kharg Island, which possesses a storage capacity of approximately 30 million barrels. However, this capacity is now on the verge of being completely exhausted. According to maritime experts, Kharg Island currently has remaining storage space for only about 13 million barrels of oil, while it continues to receive a daily influx of 1 to 1.1 million barrels. At this rate, the storage facilities could reach full capacity within the next 12 to 13 days.

Is There an Impact on Iran's Revenue as Well?

This situation has emerged as a major challenge for Iran. If storage facilities become completely full, the country will be compelled to either reduce or halt oil production. This is particularly critical for oil wells—which require continuous operation—as shutting them down could result in permanent damage. Furthermore, the suspension of oil exports is also taking a toll on Iran's revenue.