Trump breaches red line in Iran war: Why Kharg Island strike may cause alarm in China and the world

Image by the European Space Agency shows a view of Iran's Kharg Island (AFP)

• US strikes Kharg Island, crippling Iran's key oil export hub
• Attack may escalate tensions and impact global oil markets
• Kharg Island handles 90% of Iran's oil exports

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US on Friday breached its own "red line" in the ongoing war with Iran after it destroyed military targets at Kharg Island, a coral island known as the hub for 90% of the Iranian oil exports.

The tiny island, located about 25 km off Iran’s coast, has long been seen as a key vulnerability that would provoke a severe response by Tehran if attacked. So far, US had left it untouched.

In the wee hours of Saturday (India time), Trump announced that US carried out heavy strikes on military targets on the island. "The United States Central Command executed one of the most powerful bombing raids in the history of the Middle East and totally obliterated every military target in Iran’s crown jewel, Kharg Island," he wrote on social media.

The attack raised red flags around the world since an attack on the island can potentially cripple Iran’s economy and trigger a major escalation and shock global oil markets.

"You take out Kharg infrastructure, then you take 2 million bpd out of the market for good - not until the Straits get fixed," Dan Pickering, chief investment officer for Pickering Energy Partners, told Reuters.

Patrick De Haan, an analyst with US fuel price tracker GasBuddy, expressed deep concern over the attack, saying that it elevates the temperature. "Iran has less to lose and it seems to escalate. Iran when backed into a corner is highly emboldened to act,” he told Reuters.

Why Kharg island matters

Kharg is located roughly 16 miles (25 km) from Iran's coast, about 300 miles (483 km) northwest of the Strait of Hormuz, in waters deep enough to enable the docking of tankers that are too large to approach the mainland's shallow coastal waters.

Since much of Iran’s coastline is too shallow for the world’s largest oil tankers, Kharg Island serves as a crucial export point.

About nine out of every 10 barrels of Iranian oil sold abroad are loaded there.

The island is only a few kilometres long and has remained Iran’s main export hub since the 1960s when it was built by US oil company Amoco.

It is capable of loading up to 7 million barrels of oil a day, making it the backbone of Iran’s crude exports. Its importance to the Iranian economy is hard to overstate.

“The economy bottoms out without it,” Richard Nephew, a former US deputy special envoy for Iran, told the Financial Times.

Moreover, much of the oil shipped from Iran via Kharg goes to China, the top global crude importer, which has been taking measures including banning refined fuel exports to preserve supplies amid disruption in the Middle East, Reuters said in a report.

Kharg has a storage capacity of roughly 30 million barrels, and held about 18 million barrels of crude as of early March, according to a JP Morgan report citing Kpler data.

America's red line

Though the island is one of the most obvious economic targets, Washington had refrained from hitting it, until Saturday.

Iran has claimed that operations on the island resumed after the strikes and that oil facilities remained intact. However, US strikes on the island indicate that Trump is now willing to cross the traditional American red line as the conflict escalates.

Experts told The Financial Times that US and Israel fear such a strike could provoke Iran into retaliating against the oil infrastructure of Gulf states. “That would be a significant escalation,” Nephew had said earlier, before the strikes.

He had said that even if a regime change were achieved in Iran, destroying Kharg would weaken any future government by eliminating the backbone of the country’s oil economy.

A disruption at Kharg nat now push crude prices even higher and strain relations with China, which buys the overwhelming majority of Iranian oil.

Multiple very large crude oil tankers were loading at Kharg on Wednesday, according to satellite imagery reviewed by TankerTrackers.com.