[Weekend Money] Why Iran's Kharg Island Is Shaking Up Asia's Oil Supply

As the Middle East war continues, interest in Kharg Island, Iran's key crude oil export base, has grown after the recent U.S. military strike on the island and speculation that the U.S. may seek to occupy it. Kharg Island is a critical hub, handling 90% of Iran's oil exports. There are concerns that risks surrounding Kharg Island could destabilize Asia's crude oil supply.

According to IBK Investment & Securities, the strategic significance of Kharg Island goes beyond the value of a simple oil field. The island is not an upstream asset symbolizing Iran's oil production capacity, but instead serves as a core export hub where produced crude oil is stored, blended, and shipped, thus converted into foreign currency. Currently, Kharg Island processes about 90% of Iran's seaborne crude oil exports. Out of this year's daily exports of 1.7 million barrels, approximately 1.55 million barrels passed through Kharg Island. Its storage capacity is about 30 million barrels, with inventories at around 18 million barrels as of early March.

Lee Dongwook, a researcher at IBK Investment & Securities, stated, "Ultimately, the essence of Kharg Island lies not in production, but in monetization," adding, "Even if crude oil is produced normally from inland oil fields, Iran's actual oil export capacity would sharply decrease if the pipelines, terminals, storage tanks, or loading facilities on Kharg Island are disrupted. This is why industry experts believe that damage to Kharg's infrastructure could reduce global oil market supply by up to 2 million barrels per day."

Kharg Island is located approximately 26 kilometers from Iran’s mainland coast, and about 483 kilometers northwest of the Strait of Hormuz. Its waters are deeper than those off the Iranian coast, allowing for the berthing of ultra-large oil tankers. Lee explained, "The island's strategic value lies not merely in its location, but in being a deep-sea export base with large-scale shipping efficiency," and added, "In the recent conflict, Kharg Island has emerged as a core leverage point for U.S. pressure on Iran, beyond simply being an energy facility. On March 14, the U.S. military conducted limited strikes on military targets on the island, and on March 19, the U.S. Secretary of Defense cited this as an example of strategic leverage to control Iran."

Some in the market have mentioned the Goreh-Jask pipeline and the Jask terminal as alternative export routes, but analysis suggests their effectiveness is limited. Lee noted, "Actual transportation capacity is only about 300,000 barrels per day, and in the summer of 2024, daily shipments fell below 70,000 barrels, with exports virtually halted thereafter," adding, "Ultimately, Jask is an incomplete backup route and is not considered a main alternative to Kharg Island."

The risks surrounding Kharg Island are expected to become a variable impacting Asia's oil supply and demand. Lee stated, "The Kharg Island risk is not just a story from the Middle East; it will act as a structural factor requiring a reassessment of Asia's crude oil premium," adding, "Given China's reliance on Iranian crude, the concentration of Asia-bound cargoes through the Strait of Hormuz, the Kharg Island infrastructure crisis could lead to higher costs for China's independent refiners, instability in Asia's heavy crude supply, and an increase in domestic crude procurement premiums."

With the prolonged blockade of the Strait of Hormuz and ongoing concerns about damage to Middle East energy infrastructure, international oil prices continue to be highly volatile. On March 19 (local time), Brent crude futures for May delivery closed at USD 108.65 per barrel, up 1.2% from the previous session. At one point in the day, prices rose to USD 119.13 per barrel, nearly reaching the intraday high of USD 119.5 recorded on March 9, which was the highest since July 2022. West Texas Intermediate (WTI) crude futures for April delivery closed at USD 96.14 per barrel, down 0.2% from the previous session.

This content was produced with the assistance of AI translation services.