Kharg Island handles most of Iran’s crude exports. Any sustained disruption could hit Tehran’s finances, tighten global oil supplies and push prices higher
US President Donald Trump on Monday shared an AI-generated video on Truth Social. The video appeared to show Iran’s Kharg Island being destroyed in several explosions. The caption said: “Kharg Island being blown to smithereens!”
However, there was no independent evidence that Kharg Island had been attacked.
Kharg is not just another Iranian military site. It is Iran’s main crude-oil export centre. It is also one of the most important parts of the country’s economy. A long attack on its oil terminals, storage sites or pipelines could hit Iran’s main source of export income. It could also reduce oil supplies to Asian refineries and push global oil prices higher.
The risk is greater because shipping through the Strait of Hormuz, a key route for global energy supplies, is already badly disrupted. Together, these problems could turn a military conflict into a much wider energy crisis.
A satellite image shows an oil terminal at Kharg Island, Iran. File/Reuters
Why Kharg matters to Iran’s oil industry
Kharg is a small island in the Persian Gulf. It is about 25 kilometres from Iran’s mainland. Its importance comes from its oil facilities, not its size. The island has deep-water ports that can handle large oil tankers. Pipelines connect it to Iran’s oil-producing areas. It also has storage facilities and export terminals.
More from BusinessReuters estimates that Kharg handles about 90 per cent of Iran’s oil exports. Before the war, Iran exported about 1.7 million barrels of oil per day. Around 1.55 million barrels per day moved through Kharg, according to shipping and tanker-tracking data cited by Reuters.
This makes Kharg a major weakness for Iran. Iran can continue to produce oil from its mainland fields. But oil that cannot be stored, moved to a terminal, loaded on to tankers and sold abroad has little immediate economic value.
Kharg is the main link between Iran’s oil production and its export income. That is why damage to its oil facilities would matter far beyond the island.
An attack would not stop all Iranian oil exports
Still, an attack on Kharg would not automatically stop all Iranian oil exports. Iran has spent years finding ways to sell oil despite US sanctions and other restrictions. It has used smaller ships, alternative terminals and ship-to-ship transfers. It has also used secretive trading networks.
The Jask terminal on the Gulf of Oman has become more important. Unlike Kharg, Jask is outside the Strait of Hormuz. This could give Iran another route to global markets if shipping through the strait remains blocked.
Satellite images and tanker-tracking data have shown activity around the terminal.
But Jask cannot replace Kharg immediately. Its facilities and past export volumes are much smaller. To increase exports through Jask, Iran would need enough pipeline capacity, storage space, loading facilities and tankers.
Iran may be able to move some oil through other routes. Replacing most of Kharg’s export capacity would be much harder. This is the key issue for investors and oil traders.
The bigger danger is the Strait of Hormuz
The risk to Kharg cannot be separated from the crisis around the Strait of Hormuz.
The strait normally carries a large share of the world’s oil and gas shipments. Shipping has been badly disrupted during the war. Energy companies and traders are now considering longer routes and other terminals.
These changes have made the oil market tighter and more uncertain. Brent crude rose above $90 a barrel on Monday. This happened as the US-Iran conflict grew after a US strike on Iranian rocket launchers on Larak Island.
Larak is another important Iranian island near the Strait of Hormuz. But Larak and Kharg create different risks. Larak is important because it is close to the Strait of Hormuz. It also has military value because Iran can use it to watch or threaten ships. Kharg is important because it is Iran’s main oil-export centre.
If the conflict threatens both the Strait of Hormuz and Kharg’s oil facilities, the effects could go far beyond military operations. A shipping crisis could become a major oil-supply crisis.
Oil markets do not need to wait for an attack
Oil markets often react before physical damage takes place. Even a serious threat to Kharg could make refiners and traders look for other supplies. They may also build up their oil stocks. This could push prices higher before any terminal is damaged.
An actual attack would create a much bigger risk. Kharg normally handles about 1.5 million barrels of Iranian oil exports each day. Even a partial and long-lasting disruption could remove a large amount of oil from global trade.
The effects would not stop with the lost Iranian oil. A long shutdown could raise tanker prices, insurance costs and shipping charges. Refineries would compete for oil from other producers. If the conflict also spreads to Gulf energy facilities or shipping routes, more supplies could be threatened.
China is central to the issue
China is Iran’s main buyer of sanctioned oil. Reuters has reported that Iranian oil shipments to China have already fallen sharply. This is linked to the US blockade and pressure on ships carrying Iranian oil.
As a result, less Iranian oil is reaching global markets. But Kharg would still be important.
If the island’s export facilities were badly damaged, Chinese refineries would need to find more oil from Russia, the Middle East, Africa and Latin America.
They would have to compete with other buyers for these supplies. This could push oil prices higher around the world.
The impact would therefore go beyond trade between Iran and China.
A disruption at Kharg could force one of the world’s biggest oil buyers to search for supplies elsewhere. Other countries would be doing the same.
Why India is vulnerable even without Iranian oil
For India, the main risk may not be the loss of Iranian oil. The bigger risk is the higher price of oil from other countries.
India imports most of the crude oil used by its refineries. This makes the country very sensitive to changes in global oil prices. Indian refiners have already changed their suppliers because of geopolitical risks. Russia and other countries have become more important sources. Indian companies have also searched for oil in other regions.
But there are limits to this strategy. If Kharg is badly damaged and shipping through the Strait of Hormuz remains difficult, Indian refiners would have to compete more strongly for other oil supplies.
This could raise India’s import bill and weaken the rupee. Higher oil prices could also increase inflation, transport costs and business expenses.
For a country that imports oil, the source of the missing oil matters less than the price of the replacement oil. India does not need to buy Iranian oil to suffer from a crisis at Kharg.
Can OPEC+ replace the missing oil?
The main question is whether other oil producers can replace the lost supplies.
The answer is not certain. OPEC+ has a major influence on global oil supply. Some Gulf countries also have the ability to increase production. But spare production capacity does not mean that the oil can reach buyers immediately.
The Gulf’s transport system is also at risk when the Strait of Hormuz is disrupted.
Saudi Arabia and the UAE have pipelines and export terminals that can avoid the strait. This gives them some ability to keep exporting oil.
However, these routes cannot quickly replace every barrel lost from Iran. This is one of the main lessons from the current crisis. The world does not only need oil to be available underground.
The oil must also be produced, transported, stored, loaded, insured, shipped and delivered to a refinery. A problem at any one of these stages can reduce supplies and push prices higher.
Kharg is both an economic weapon and a military target
For Iran, Kharg is more than an oil terminal. It is a major source of foreign currency. This is especially important as sanctions, war and economic isolation continue to hurt the country’s finances.
The island is therefore both an economic asset and a major weakness. This is also why an attack on Kharg would be a serious escalation. Attacking military sites near the island would be one thing.
Destroying its oil-export facilities would directly target one of the main supports of Iran’s wartime economy.
Iran could respond by attacking ships, Gulf energy facilities or US interests in the region. This could create a dangerous cycle. Each military strike could cause a new economic shock. That shock could then lead to another military response.
