Iran war part 4 - Data points in the phony war
This is the first time in any conflict where a war has first been started and then diplomatic pressure resorted to, by the aggressor. The US has announced its toughest ever sanctions on Iran in the hope that Iran, which has survived so far – with a population more united behind the regime and against the US and its missile and drones largely intact, will agree to US terms to end the conflict . In this context, I’d like to revisit some of the data points I covered earlier, to see how it leaves both sides.
Some of these were covered in my previous post.
Iran war - Part 3
US Strategic petroleum reserves. The reserve of 310
million barrels in mid-July is now 289
million barrels (21 Aug). This is the lowest level since 1982 (when demand for
oil was much lower).
The practical floor is considered 250 million barrels (more
optimistic estimates are 150-170 million). That is largely moot. Federal law
requires that reserves not go below 252.4 million barrels unless there is an
emergency. The US military requires minimum reserves of 245 million barrels.
Reserves are being depleted at between 3.0 – 6.0 million barrels a week. The
reasons the depletion is closer to the lower figure are: Below average demand
from China, oil continuing to flow through the Bab-el-Mandeb strait and some
oil flowing through the strait of Hormuz. If any of these change, US oil stocks
will deplete by upto 5 million barrels a week. A depletion of 38 million
barrels more will take US stock to what is effectively zero. Just before that
point is reached, crude oil prices will sharply increase. At a depletion of 4
million barrels a week, this point will be reached by the end of October,
before the US mid term elections.
This is an article on the practical level of US reserve.I had also covered the `crack spread’. It is the refining
margin or conversion cost from crude oil to products like gasoline or diesel.
The current crack spread for diesel - $ 145 per barrel is at an all time high. ($229 per barrel equivalent in litres - $ 85 the current price per
barrel of crude oil).
US strategic petroleum reserve
The high crack spread is exacerbated by attacks on Russian refineries by Ukraine and attacks on Saudi refineries by the Houthis. This is another article on crack spread (my previous post had one from Paul Krugman). https://www.data4thepeople.com/p/running-out-of-diesel
The US imports 4 million barrels a day of crude from Canada (Canadian oil being more suited to US refineries) and it has just started a trade war with Canada.
Iranian forex reserves: Iran has said that in 4 months since Mar 21st
(start of the Iranian new year)
they earned $ 7.5 billion from oil related exports. Given average oil prices
and Iranian discounts to world prices, it is an estimated sale of 100 million
barrels of oil in 120 days, or 0.85 million barrels a day (BPD), against a per
war export of 1.1 million BPD. This has happened despite a US blockade of
Iranian oil from April.
In addition, as of mid-August, Iran has approx. 83
million barrels of oil at sea and out of the reach of the US Navy. This can
be exported upto mid-November.
Iran’s foreign exchange as of mid Aug, were sufficient to
last till Dec. If the sales from `oil at sea’, is added, this is extended by 3
months and another 6 weeks, from oil sales between Aug and March through routes
outside the strait of Hormuz. If Iran has to have a steady income in foreign
currency to meet essential imports (i.e beyond April 2027) , it will have to
export more oil by sea from Feb 2027 onwards.
I had made the point earlier in
this series that China’s continued purchase of Iranian oil is the single
biggest factor enabling the Iranian economy to survive and suggested that China
might attempt to break the US blockade of Iran, by their navy escorting Chinese
flagged ships to Iran. That did not happen, because Iran was not in an
emergency and Chinese oil demand in the previous 4 months was lower than
average.
The planned meeting between
Presidents Trump and Xi, will take place on 24th Sept. It will
probably be after a bill seeking to impose 100% tariffs on Russian oil is
passed by the house of representatives (it’s already passed in the Senate) and
goes to Trump for passing into law. By that time there will also be clarity on
sanctions on Chinese entities buying Iranian oil or trading with Iran. My sense
is China will convey that they will continue trading with Iran and Russia and
will retaliate against any sanctions.
A further meeting between Trump
and Xi is possible at the APEC summit in Shenzhen on Nov 18-19
and the G-20 summit on Dec 14-15 in Florida.
The Houthis. I have, in
previous posts been sceptical of the Houthis ability to enforce a blockage of
the Bab el Mandeb – given the low success rate of drones and missiles fired at
merchant ships in 2024-5. However, on 25 Aug, the Houthis hit a large Saudi
Tanker (the Amjan) at a range of 1079 km, off the Saudi oil terminal of Yanbu,
with a ballistic missile. This is the longest range at which any ship has ever
been hit. The Houthis have also demonstrated their ability to hit Saudi oil
refineries. On the ground, they have made gains against a Saudi backed forces,
along the Red sea, in the areas of Mokha and Hudaydah. This is a write up on the conflict, with a detailed map.
Iraq: The US has agreed to withdraw all their forces from Iraq by 30th Sept. The anti-Iran Kurdish group the PAK – hyped as a group that would `invade’ Iran once the regime collapses, was abandoned by the US and targeted by Iran in drone strikes. The US also withdraw anti drone interceptors for the group, given their shortage across the region.
The US managed a `soft coup’ by
getting a US friendly PM elected in Iraq – Ali Al-Zaidi who then arrested pro
Iran Shia politicians ostensibly on charges of corruption. However, US control
of the Iraqi govt and its oil revenues, coupled with a Saudi air strike (backed
by the US) against a Shia militant group in Iraq, have turned Shia groups
against the PM and more supportive of Iran.
Having an open border with Iraq, Shia militant groups that
are pro Iran and the diminishing of the PAK as an anti-Iran force, is significant gain for Iran from the conflict.
That is possible why Iran has selectively allowed ships with Iraqi oil to flow
through the strait of Hormuz.
Return of Iranian frozen assets. It has been widely
reported that first Qatar, then the UAE have returned some of the frozen assets
they had frozen, in return for Iran not attacking them.
The link to that story (reported by major news outlets in lesser detail)
https://www.specialeurasia.com/2026/08/16/uae-iran-shadow-diplomacy/
Both Qatar and the UAE have lost more than Iran from lost
energy exports. Qatar has lost US$ 24 billion from lost gas sales. Qatar has
also lost a quarter of its gas generation capacity for at least a couple of
years, so losses from future lost production will be higher even if the strait
of Hormuz is open. As an example of indirect losses, the UAE stock market has
lost $120 billion.
Significantly, neither country allowed the use of US aircraft from its
territory against Iran, in the recent post ceasefire escalation. The UAE,
probably under pressure from the US and Israel, did announce an economic
embargo on Iran, but after the reported transfer of frozen assets to Iran.
Drone losses: A key part of US AND Israel’s ability
to identify targets in real time is the use of drones like the MQ-9. In this
conflict, the US is known to have lost 45 MQ-9 drones, a more sophisticated
MQ-4C Triton and possibly drones damaged in their hangar during a missile
strike on their base in Jordan. 45 drones are 25% of the US drone fleet. If one
includes about 15 drones believed to be damaged, it is a third of the US drone
fleet. If one considers the minimum number of drones needed to be in US bases
in other regions (half the total), or under repair, or for training, there are
almost no drones available for the Iran theatre. Israel is believed to have
lost 12-15 recon drones over Iran and 8 more against Hezbollah.
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