Oil Is Piling Up With Nowhere to Go
Five weeks after the ceasefire was announced, the Strait of Hormuz still has not fully reopened, and oil is piling up across the Persian Gulf. Saudi Aramco’s CEO said this week that around 600 ships sit trapped inside the Gulf with another 240 idling outside. Saudi Arabia, Iraq, Kuwait, the UAE, and Qatar all have crude in tanks and on ships, waiting for the Strait to clear.
Iran is in an even tighter spot. The U.S. blockade on Iranian oil exports has been in place since April 13. Iran’s main storage hub at Kharg Island was already three-quarters full when the blockade began. Iran has stretched its remaining capacity by reactivating underground storage from depleted oil fields, repurposing natural gas caverns, and continuing to move small volumes to China through ship-to-ship transfers. These workarounds have bought time, but most analysts now believe Iran is within days of running out of usable storage.
Once storage is truly full, the physics become unforgiving. Oil flowing from a well does not stop just because the tanks are full. Real pressure builds across pipelines, wellheads, and storage facilities with nowhere to release. The longer the buildup continues, the greater the risk that something in the system literally bursts at the seams, whether through forced well shutdowns or emergency releases that waste valuable production.
Why This Pressures Iran to Settle
The oil buildup is the most powerful piece of leverage the U.S. has at the negotiating table. Iran’s economy runs on oil revenue. Before the war, oil sales brought in roughly $115 million a day. Under the blockade, the U.S. Treasury says Iran is losing about $170 million in revenue every day the oil cannot move. Iran already has inflation running above 40% and a currency under stress. Every day the blockade holds, Iran’s leverage at the Islamabad talks gets weaker. This is exactly the kind of pressure that brings parties to real settlement rather than a cosmetic deal.
Why Shutting Down a Well Is Not Easy
Once a well is producing, shutting it off is risky and expensive. The longer a well sits idle, the more damage can occur to the underground reservoir. Wax can solidify in the pipes. Water can move into the spaces where oil used to flow, sometimes permanently trapping the oil behind it. Pressure can drop in ways that are hard to restore. Industry studies put the average productivity loss at 20% to 30% for wells that sit idle for extended periods. This is why producers around the world keep pumping even when prices crash and storage fills.
The Backlog Beyond Iran
Iran is the most visible piece of the story, but the larger backlog sits with the U.S.-allied Gulf producers. Iraq has roughly 17 million barrels stored on land and another 20 million on ships offshore. Production there fell from 4.3 million barrels a day to under one million during the war. Saudi Arabia, Kuwait, and the UAE all have tanks full and ships idling. Worldwide, somewhere between 880 million and 1.4 billion barrels of oil have come out of normal trade flows since the war began. That is roughly two weeks of global oil consumption sitting in storage, waiting to move.
What Could Happen When the Gates Open
Once the Strait fully reopens and the blockade is lifted, a large volume of oil will race to market all at once. OPEC has approved production increases for May and June rather than cuts, signaling they intend to monetize the backlog rather than defend higher prices. The UAE exited OPEC on May 1, which removes another producer from any future supply discipline.
If the backlog floods the market, the price impact could be larger than the consensus expects. Mainstream bank forecasts still anchor around $75 to $90 a barrel, but those numbers assume an orderly normalization that may not hold. History suggests the downside could be much larger. When Saudi Arabia stopped defending prices in 1985, oil fell from $30 to under $10 in six months. The 2014 to 2016 shale glut took oil from $110 to $28. In 2020, U.S. oil briefly traded at negative prices because storage filled up. With close to a billion barrels of supply waiting, no clear OPEC defense, and demand softened by months of high prices, a move toward $50 a barrel would be well within historical precedent. This outcome is not guaranteed. The Strait could reopen slowly, or the damage to Gulf infrastructure could hold back enough supply to keep prices higher. But pre-war Brent was $73, so even a drop to $50 would represent only a 30% decline, modest compared to past glut episodes.
The Inflation Angle
Crude oil makes up roughly half the cost of a gallon of gasoline. Every $10 drop in oil takes about 25 cents off pump prices and a few tenths of a point off headline inflation. If oil moves toward the $50 to $60 range later this year, headline inflation could come down by close to two percentage points. Diesel, freight, food, fertilizer, and petrochemical costs would all ease in the same direction.
That said, oil is only one piece of the inflation puzzle. Services inflation, wages, and shelter costs have been stubborn, and those components are unlikely to ease just because crude prices fall. The Federal Reserve will probably need to see broader progress before cutting rates. But a meaningful drop in oil would still be a clear positive on the inflation front and would take some pressure off the consumer.
The Bottom Line
The oil story coming out of this war is not the one most people expected. Instead of permanent scarcity, we are looking at a coming wave of supply that will likely force Iran to settle, push prices lower, and ease inflation through the second half of the year.
None of this changes how we think about portfolios. Diversification across regions, sectors, and asset classes is built for situations exactly like this one, where conditions can shift quickly in unexpected directions. The clients who stayed the course through six weeks of war headlines are now positioned to benefit from the recovery. As always, if your situation or goals have changed, please reach out. Otherwise, the best action remains the one we have recommended all along: stay invested, stay diversified, and let the plan do its work.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.