How the U.S. blockade is starting to hurt Iran’s economy

Soon after he ordered a naval blockade in mid-April, U.S. President Donald Trump claimed Iran’s pipelines would “explode” within a few days from the inability to export crude oil.

Although Trump’s extreme prediction didn’t come true, there’s evidence the blockade is starting to hurt Iran’s economy.

With ship transport in and out of Iranian ports effectively cut off, the country’s oil production has slowed, its currency has hit record lows against the U.S. dollar and mass job layoffs have been reported.

“They can’t pay their soldiers. The money is worthless,” Trump said this week at the White House.

The biggest question is whether the economic effects will prove strong enough to force the Iranian regime to give in to the Trump administration’s terms for a peace deal, such as ending its nuclear enrichment program and ceding control of the Strait of Hormuz.

Edward Fishman, director of the Center for Geoeconomics at the Council on Foreign Relations think-tank in New York, says the blockade is effective because the Iranian regime is highly dependent on revenue from oil exports.

“Without that, it’s become extremely difficult for the Iranian government to pay employees, to procure imports from other countries,” Fishman told CBC News.

“This is having a massive impact on Iran’s economy,” Fishman said. “By really any measure, it’s imposing substantial economic pressure on the Iranian government and frankly, the entire Iranian nation.”

When will the economic damage peak?

While there’s broad agreement among analysts that the blockade will do damage to Iran’s economy, there’s some difference of opinion about how long it will take for the damage to hit hardest.

Two of the key factors at play: how much crude oil Iran managed to get out to sea before the blockade began, and how much oil the country can store before it has nowhere left to put its daily production and must start shutting down wells.

Iran has put at least 140 million barrels on floating tankers beyond the blockade zone, the bulk of it waiting to be delivered to China, the Wall Street Journal reported in April, citing figures from ship-tracking company Vortexa.

That’s enough to provide Tehran with its pre-war oil revenue levels at least until August, according to a report by the Soufan Center, a non-profit research and analysis organization based in New York.

Iran has at least a month of storage capacity available at current production levels before it would need to ramp down the flow of oil, according to reporting by Bloomberg, citing industry analysts.

A confidential CIA analysis delivered to Trump administration policymakers this week concludes that Iran can survive the U.S. naval blockade for at least three to four months before facing more severe economic hardship, the Washington Post reported on Thursday.

It all means the regime may be able to weather the economic crunch for much longer than the more optimistic timelines floated by the president and his cabinet.

‘More effective than the bombing’

It’s been 10 days since Trump claimed on social media that Iran was in a “State of Collapse” from the effects of the blockade.

“They are choking like a stuffed pig,” he told Axios the next day, describing the blockade as “somewhat more effective than the bombing.”

Treasury Secretary Scott Bessent said last week that oil production shutdowns and gasoline shortages in Iran were imminent.

“We are suffocating the regime,” Bessent added Sunday in an interview with Fox News, predicting the blockade would force Iran to shut down oil wells “in the next week.”

The reality is that while the blockade is having an impact, it’s not happening quite as quickly as Trump and his officials are claiming, nor as dramatically as implied by the “Operation Economic Fury” nickname given by the White House.

Fishman says it’s anything but certain that the blockade alone will be enough to force the regime to accept U.S. demands for a peace agreement.

“The track record of regimes anywhere around the world actually capitulating under economic pressure is very, very slim,” he said, citing such examples as Venezuela and Syria, whose rulers persisted through years of sanctions that devastated their economies yet only lost power as a result of military action.

But Fishman said the blockade “certainly gives the Iranian regime more of an incentive to negotiate than they had previously.”

There’s a similar perspective from Kpler, a firm that monitors global commodities markets, which reported a sharp drop in oil loading at Iran’s main export terminal of Kharg Island immediately after the blockade started.

“The fact that Tehran has asked for the blockade to be lifted as a condition to resume negotiating highlights that it is hurting,” wrote Homayoun Falakshahi, head of crude oil market analysis for Kpler, in a blog post this week.

“Although the blockade doesn’t choke Iran financially in the immediate term, it comes with the promise of doing so down the line if it is maintained,” Falakshahi said.

Fernando Ferreira, the head of geopolitical risk service at Rapidan Energy Group, a market analysis consulting firm based in Washington, D.C., says Iran’s regime got ready in advance of the blockade to face the economic pressure.

“They’re prepared to hold out for months,” Ferreira told CNBC. “That runway might be longer than Trump has in mind for results.”

A key factor that helped Iran brace for the blockade: all the extra revenue it has brought in as a result of the steep rise in global oil prices during the war.