The Strait of Hormuz—The Iranian Oil Chokehold

October 9, 2012

The Strait’s Significance

Oil, in many ways, makes the modern world go around. Oil prices affect car and bus commute costs, the cost of transportation of food, the cost of airfare and air transport, and much, much more. Even plastics are made from products derived from the oil industry. So it’s not a stretch to say that any disruption of oil supplies has the potential to be catastrophic. It’s not just an extra dollar or Euro at the gas pump; it would impact the very price of food and clothing. So if the world depends so heavily on oil, just how much of it actually goes through the Strait of Hormuz?

Referred to as “the world’s most important oil chokepoint,” the Strait of Hormuz has only two shipping lanes of 2 miles (3.2 km) wide. According to the US government’s Energy Information Association (EIA), in 2011, almost 20% of worldwide oil production passed through the Strait of Hormuz. That’s almost 17 million barrels per day out of a total of 88 million barrels of oil per day that were produced worldwide. The EIA Web site referred to the Strait of Hormuz as “the world’s most important oil chokepoint.” It noted that an average of 14 crude oil tankers went through the Strait on a daily basis last year, with a similar rate of empty tankers passing through to get more cargo. In other words, this is a key linchpin in the world’s oil shipments.

So where does the oil go? The EIA said that, in 2011, more than 85% of it went to Asia. Europe receives some as well. But just because most of the oil doesn’t reach New York or London doesn’t mean a cutoff wouldn’t impact gas prices there. The world oil supply is, to a degree, a balancing act. Because the world today consumes such huge quantities of oil, cutting off almost 20% of the supply would certainly cause problems in America and the United Kingdom. It seems fathomable that other places, such as South America and Russia, could increase their oil production to help make up for some of the shortfall. But even so, that would take time.

More importantly, oil trade tends to work much like the stock market—anxiety is reason enough for prices to rise. So a crisis in Asia could very well cause spikes in prices elsewhere as concerns arise about total supply because the global economy is very connected to all its parts. A gas crisis in China would negatively impact exports of many clothing goods to the US. If India is hurting, that can impact France as well. It’s like the food cost surge in 2008: bad weather in Asia, a shift of corn to use in alternative fuel in the US, and drought in various parts of the world caused foodstuffs to spike in price. The world is too interconnected for a crisis in one place not to cause shudders elsewhere. Panic alone could cause gas prices to rise.

So having looked at what a possible chokehold means, could it really happen? Would Iran try to close the Strait of Hormuz?

The Threat

US Navy presence in the Persian Gulf is a very real threat to Iran should they decide to close the Strait. The biggest factor in determining the risk Iran poses to the world oil trade is considering their capability. Can they actually block the Strait or mine it enough to choke off the oil supply? According to the top American military official, the answer is yes…to a point. Speaking with CBS’s “Face the Nation” in January, Chairman of the US Joint Chiefs of Staff Gen. Martin Dempsey said of Iran, “They’ve invested in capabilities that could, in fact, for a period of time, block the Strait of Hormuz. We’ve invested in capabilities to ensure that if that happens, we can defeat that. And so the simple answer is yes, they can block it…but we would take action and reopen the Strait.”

The US has gone beyond just investment on this matter. The US Central Command announced plans for an international mine-clearing exercise focused on Middle East waters that was set for September. While it wouldn’t be in the Strait of Hormuz, it’s surely aimed at handling such a scenario, among others. Suffice it to say, the US generally achieves goals through brute strength: Iran can’t block the Strait forever. But even a short time of oil price shockwaves and price surges could cause panic and economic nightmares. Stock markets could react violently. A world economy already wobbly doesn’t need a sharp push such as this.

So that’s why the US has made it abundantly clear they will not abide Iran blocking the Strait. US Secretary of Defense Leon Panetta, in that same CBS program, said, “We made [it] very clear that the United States will not tolerate the blocking of the Strait of Hormuz. That’s another red line for us, and that we will respond to them.” And just those words are a good reason why the Strait likely won’t be blocked unless there’s a military strike on Iran.

Dr. Emily Landau, a senior research fellow at the Institute for National Security Studies in Tel Aviv, told The Mideast Update that less than one year ago, Iran was getting boisterous. The Europeans were talking about upping sanctions on Iran and ultimately emplaced a major oil embargo. It was a significant, “biting sanction” that had been promised for so long. And Tehran, understandably, didn’t want it to happen, so they started making threats about blocking the Strait of Hormuz.

But rather than back down, as the world had so often done with Iran, the world fought back. The US made it clear, as Panetta told CBS, that Iran blocking the Strait of Hormuz would be an absolute red line. Dr. Landau said that the Barack Obama Administration sent a message to Iranian leader Ayatollah Khamenei saying that closing the Strait would result in “consequences.”

“It’s become common knowledge that…by taking any action to close the Strait of Hormuz, Iran will be risking military engagement with the United States,” said Dr. Landau, “which is something that I think they want to avoid.”

Almost as importantly, the world-at-large didn’t shy away from a potential confrontation. The EU passed its oil embargo on Iran and that took full effect in July. Instead, it was Iran who backed down. Dr. Landau said the threats to block the Strait were reinterpreted by Iran, not implemented. Iran even temporarily pursued diplomacy with the West over its nuclear program for the first time in a while, rather than resort to direct confrontation. Iran wasn’t serious in its talks with the world, so the diplomacy went nowhere. But so did the Iranian plans for blocking Hormuz. More recently, the Iranian parliament, according to Iranian media, has explored legislative steps to allow the Strait to be targeted, but Dr. Landau said a decision of this magnitude rests with the Ayatollah.

Analysis and Conclusion

So the threats from Iran have settled down to one point: a military strike on Iran’s nuclear facilities. Iran won’t risk a war that could prevent it from getting nukes. But if a war is already started, Iran might just use the Strait of Hormuz as a weapon to retaliate. Then again, they might not even respond at that point. Regardless, the good news for the world is that efforts are already underway to help circumvent any blocking of the Strait. The BBC reported that the UAE has opened a pipeline that would send oil out to sea to get around the Strait, with plans to eventually send as much as two-thirds of their shipments through the pipeline. That would be 1.6 million barrels per day.

Hence, the Arab states are already trying to find ways to steal one of Iran’s cards by getting around a blockage of Hormuz. The more they succeed before Iran goes nuclear, the more Iran loses another option to play—clearing another obstacle or concern away for Israel or the US to act militarily if they deem it necessary. But although the threat to block Hormuz is real, Dr. Landau doesn’t believe it will be the one reason that could stop the US from attacking Iran if they decide to do so. The greater threats from Iran in the event of a military strike are with terrorism and starting a war in the Middle East. For Israel, a nuclear-armed archenemy that boasts of Zionism’s demise is a potential existential threat. Jerusalem won’t let oil prices affect national survival.

And what if Israel, and not the US, launches the attack? Dr. Landau isn’t certain Iran will race to block Hormuz. She said it’s unclear if they would resort to an “all-out military confrontation” or tend towards restraint. “Obviously, there will have to be some reaction…If I had to give my assessment, it would be more in the direction of a more restrained response,” said Dr. Landau. “Just because, from everything that I see with regards to Iran, especially over the past 10 years, they haven’t given any indication that they want to get into a military confrontation… They’re very happy for Hizbullah to be engaged militarily with Israel, but they don’t want the war coming to Iran. So I think that they’ll be a little bit cautious about taking action that will bring all of the [weight of] US wrath against them.”

So the reality is this: Blocking the Strait of Hormuz would be bad, very bad, for the world economy, and Iran is able to do it, at least temporarily. But, Iran isn’t guaranteed to do it unless a major war with the US is already up and running—if even then.

The Real Risk—A Nuclear Iran

Tehran, the capital of Iran But blocking the Strait in response to a US strike isn’t the real terror. Rather, it’s the alternative to not doing enough—that Iran is allowed to get nukes. A nuclear-armed Iran has less to fear if they decide to block Hormuz. The US wouldn’t dare resort to a major regime-change war in Iran—as they did in deposing Saddam Hussein in Iraq or the Taliban in Afghanistan—and risk a nuclear strike on Saudi Arabia, Israel, or even the US itself. Getting the ayatollahs out of power might be necessary, but with a nuclear Iran, it would be too dangerous.

Iran will wield much more power and influence if they cross the nuclear threshold. A mere threat from a nuclear Iran could cause oil prices to rise. Terrorists would have nuclear cover—and who’s to say Saudi Arabia or other oil giants wouldn’t be at the top of Iran’s list? A Persian Gulf where a nuclear Tehran is the most powerful force is a Middle East on the brink. And if other states start pursuing nukes, the volatility in the region would surely cause oil traders to worry more.

Even though a Middle East war by itself—even without Hormuz blocked—would cause oil prices to spike, the price increases would likely be temporary. But a nuclear-armed Iran is an ongoing threat. Iran currently is less a risk to the world than they would be with nuclear weapons. The Strait of Hormuz is so important to the world, Iran realizes it will cost them a lot to block it. It might even provoke a war with the US that could spiral into regime-change.

So Iran will issue bluster, but that’s all it is. And even if it acts, it can’t choke the oil industry forever—unless it gets nukes. Then the bluster glows with radiation. Rather than prevent oil price increases by not acting, the West could find that a nuclear Iran holds the global economy in its bloodstained hands—and that’s a chokehold the world should really fear.

Source: By Joshua Spurlock, The Mideast Update