Iran port blast: What it means for the country's economy and the oil market

The National

28-04-2025

An explosion in a port city in southern Iran on Saturday rocked Shahid Rajaee port in Bandar Abbas, disrupting one of the country's key shipping and trading arteries and adding to the oil exporter's significant economic pressures. Fires were still blazing on Sunday after an explosion tore through Iran's largest commercial port at Bandar Abbas the day before, killing at least 28 people and leaving hundreds injured. The strategic port is the country's biggest and one of its most strategic assets. In 2024, it handled 85 per cent of Iran's shipping container traffic, according to the Port and Maritime Organisation. The port is strategically located on the northern shore of the Strait of Hormuz, through which 20 per cent of all oil trade passes and is vital for international trade. The state-owned National Iranian Oil Products Distribution Company said in a statement the explosion 'has no connection' to its facilities, reporting no interruption to its work in Bandar Abbas. Bandar Abbas, the capital of Hormozgan province, is Iran's main southern port city and is vital to the global oil industry. 'Shahid Rajaee Port is Iran's largest and most significant maritime hub, often referred to as the 'Golden Gateway' of Iran's trade. The port connects with 80 major international ports via 35 top container shipping lines,' said Alex Vatanka, a senior fellow at the Washington-based Middle East Institute. The hub for container shipments, covering 2,400 hectares, handles 70 million tonnes of cargo per year, including oil and general shipping. It has nearly 500,000 square metres of warehouses and 35 shipping berths. With a capacity of 100 million tonnes of cargo annually, including 6 million TEU containers, it manages about 55 per cent of Iran's total cargo operations. The port features 40 berths, supports more than 4,000 vessels and also offers logistics, industrial and free-zone advantages. The significance of the port means the disruption may have broader economic and security implications for Iran and for regional trade routes. The explosion comes as Iran's economy struggles, as US President Donald Trump's administration presses on with its 'maximum pressure' campaign against Tehran with a new round of sanctions to curtail its revenue. Iran's economic growth is projected to flatline to 0.3 per cent in 2025, down from 3.5 per cent in 2024, an International Monetary Fund report said. It is forecast to expand 1.1 per cent next year. 'The explosion at Shahid Rajaee Port in Bandar Abbas – Iran's largest commercial port – will have an immediate and severe impact on Iran's economy,' said Dean Mikkelsen, independent maritime, energy and security analyst. 'Its shutdown disrupts the flow of goods, deepening Iran's economic isolation at a time when it is already under significant sanctions pressure.' The port explosion come at a time when new US sanctions on Iran are seeking to curb the country's oil exports. 'Critically, the port also supports infrastructure related to Iran's oil exports, including operations tied to Iran's 'dark fleet' – a network of ships that covertly export Iranian crude oil by disabling AIS systems and conducting ship-to-ship transfers,' Mr Mikkelsen said. Iran's oil exports provide its government with an estimated revenue of $50 billion to $55 billion annually, which helps to fund essential state services and stabilise the economy. "Any 'nterruption, even temporary, threatens Iran's financial stability," Mr 'ikkelsen said. "A pr'longed closure would force Iran to reroute trade through smaller, less efficient ports, increasing costs and risking further bottlenecks." Ira', the third largest producer in the Organisation of the Petroleum Exporting Countries (Opec), extracts about 3.3 million barrels of oil per day (bpd), or about 3 per cent of global output. While the Strait of Hormuz remains open after the explosion at nearby logistics hub of Shahid Rajaee Port, the incident raises the risks for regional shipping, analysts say. The incident has 'the potential of driving up insurance premiums and forcing some vessels to reroute to safer ports in the UAE or Saudi Arabia, increasing transit times and costs', Mr Mikkelsen said. 'While the immediate impact may be contained regionally, the broader effect is a further tightening of global supply chains, with delays and cost increases rippling across industries.' This comes at a time when global trade is projected to slow down due to the US tariffs regime imposed by the Trump administration. 'This added disruption could deepen supply bottlenecks and drive up costs for consumers and businesses worldwide,' he said. The World Trade Organisation on April 16 said that following a strong performance in 2024, global trade is now facing headwinds from a surge in tariffs and rising trade policy uncertainty. The volume of global merchandise trade is projected to decline by 0.2 per cent in 2025 – almost three percentage points lower than it would have been without the recent policy shifts. A modest recovery of 2.5 per cent is expected in 2026, the WTO said in its Global Trade Outlook and Statistics report. With tariffs-induced economic uncertainty, the added disruption to critical shipping routes near the Strait of Hormuz and the Red Sea has the potential to push transport and energy costs higher, Mr Mikkelsen said. 'If businesses face rising shipping and fuel costs, those expenses are likely to be passed on to consumers, amplifying inflationary pressures triggered initially by the tariffs,' he said. 'The port explosion compounds existing vulnerabilities by increasing the risk of prolonged inflation and supply chain instability.' The port blast came as Iranian and US delegations met in Oman for high-level talks on Tehran's nuclear programme on Saturday, with both sides reporting progress. While Iranian authorities so far appear to be treating the blast as an accident, it comes against the backdrop of years of shadow war with regional foe Israel. 'The significance of this incident and its human costs is very high,' said Mahdi Ghodsi, economist at The Vienna Institute for International Economic Studies. 'Any evidence regarding its initial cause is crucial at this sensitive moment, coinciding exactly with Iran's third round of negotiations with the US. 'If this incident was accidental, it highlights poor government effectiveness and a political system unable to provide the necessary security services. 'Alternatively, if this incident involved foreign intervention, it could exacerbate tensions and derail the negotiations by shifting the focus away from nuclear issues to regional issues, thereby jeopardising these talks that are solely designed to be on nuclear issues.'