Tehran’s oil industry is powered by Kharg Island in the Gulf

Iran’s Kharg Island, a small but strategically important land in the waters of the northern Persian Gulf, has been left untouched by US and Israeli forces as the Middle East conflict enters its second week.

About 15 miles off the coast of mainland Iran, the atoll serves as the epicenter of Iran’s oil industry.

It is estimated that around 90% of the country’s crude exports pass through the Strait of Hormuz before tankers travel through it. The island is said to have a loading capacity of approximately 7 million barrels per day.

Kharg Island’s economic importance to Iran makes it particularly vulnerable to the threat of military action, although analysts say any attempt to capture it would require a ground military operation, which the US is reluctant to undertake.

The attack will prompt further energy market volatility at a time when oil prices are above $100 a barrel.

Capturing the island would “cut off Iran’s oil lifeline,” which is vital to the regime, said Petras Katinas, a research fellow in climate, energy and defense at RUSI, a London-based defense think tank.

“Of course, since shipping through the Strait of Hormuz is now shut down, they can’t sell oil anyway, but looking ahead, the seizure gives the US leverage during negotiations, no matter which administration is in power after the military operation ends,” Katinas told CNBC by email.

“The capture, however, would require a ground force operation that this administration seems reluctant to undertake. At least for now,” he added.

Crude futures rose to their highest level since mid-2022 on Monday after the US and Israel launched a new wave of strikes across Iran over the weekend.

The attacks hit several Iranian energy sites, including oil storage depots, signaling a new phase in the war as the sprawling Middle East crisis moves into its tenth day.

International standard Brent crude futures With May delivery trading nearly 16% higher at $107.18 a barrel on Monday morning, paring earlier gains, but the U.S. West Texas Intermediate Futures It was last seen up 12.5% ​​at $102.1 with April delivery.

“If President Trump decides to seize this important center, it will deal a significant blow to the Iranian regime, as it will deprive them of a critical source of income. Such a move is reminiscent of the US intervention in Venezuela at the beginning of the year, when it effectively took control of the country’s oil sector,” said Tamas Varga.

“While this could signal the resumption of Iranian oil exports—under US supervision, and only if the strait reopens—it could also be vulnerable to drone strikes from Iran. An eventual US occupation of the island would further complicate an already complicated situation,” he said.

Typically, about 20% of the world’s oil and gas passes through the Strait of Hormuz, but shipping traffic through this key maritime corridor has been halted since the war began late last month.

According to Mark Gustafson, former head of the White House Situation Room who previously served under Presidents Trump, Joe Biden and Barack Obama, US President Donald Trump may be tempted to order US forces to seize Kharg Island for several reasons.

Among these is an opportunity for Trump to score a “huge PR win,” giving US forces a natural barrier from the Iranian mainland and fitting in with the president’s push for maximum leverage over the Iranian regime.

Gustafsson, who now serves as senior director of analytics at Eurasia Group, said any such operation would be fraught with risk.

Gustafsson said in a LinkedIn post last week that an attempt to capture the island would require US troops on the ground and could be a multi-week target for Iranian drones.

He warned that this could drive up oil prices even further, and that Tehran might consider self-sabotage to destroy the oil pipeline that feeds it.

“There’s a concept or a dimension to this that no one has mentioned about Kharg Island,” John Van Eck, CEO of VanEyck Funds, told CNBC’s “Power Lunch” on March 2.

“A place where 90% of Iran’s oil is exported — that’s a choke point. And if you think Trump will follow the same playbook that he did in Venezuela. What did he do? He cut his oil exports, his hard currency, and I think he wants to continue that leverage point,” Van Eck said.