Iran's Kharg and Larak islands: Why they matter

Recently, the US has escalated tensions with Iran by attacking Larak Island and threatening to destroy Kharg Island. Larak Island, a naval and logistics hub for Iran's Islamic Revolutionary Guard Corps (IRGC), plays a vital role in the country's defense and oil storage. With its strategic position overlooking the Strait of Hormuz, Larak serves as a secondary oil storage and transfer hub. The island's significance lies in its ability to overlook the crucial waterway, which is vital for global oil trade.

Kharg Island, an important oil export hub, handles around 90% of Iran's crude exports. The island's loading capacity is seven million barrels per day, with a storage capacity of 30 million barrels. Before the war, most shipments from Kharg Island were destined for Asian customers, with 80% going to China. These shipments traveled through undersea pipelines from Iran's major oilfields, including Ahvaz, Gachsaran, and Agha Jari, to the island.

Following the attacks, oil prices surged, with Brent crude reaching over $90 per barrel. The US Treasury Department imposed new sanctions on Iran in an attempt to isolate its economy and break the deadlock in the conflict. These measures, part of Operation Economic Outcast, targeted companies and countries engaging in business with Iran, giving them a deadline to cease Iran-related activities. Despite Iran's abundant oil reserves, its production is limited due to underinvestment and international sanctions.