Can Iran’s stand on the Strait of Hormuz disrupt the world’s oil exports?

The tensions mounting in the Persian Gulf has ensured the international communities take notice of it and find an amicable solution. There is an escalating tension between the US & Iran and this has raised the prospect of a military clash owing to the waterway which is vital for Global Oil Supplies. Close to 1/5th of the world’s crude oil supplies rely on the uninterrupted travel through the Straits of Hormuz which is 21 miles wide at its narrowest point.

The Straits of Hormuz is one the world’s most crowded waterway with 100’s of ship movement majority of which is composed of oil tankers travel in & out of the strait. This water way constitutes to a bulk of oil exports that is being supplied by the Gulf countries to the rest of the world. It is one of the world’s busiest ship lanes with 18.5 Mn barrels of Crude oil & petroleum passing through each day. In  April, the Iranian officials threatened to close off this vital waterway as US president Donald Trump ended sanction waivers to importers of Iranian Oil, effectively eliminating a vital source of revenue for Tehran. The US has long considered freedom of navigation as a vital interest and it is setting a stage for the confrontation if Iran tries to close the waterway to shipping.

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A map on world

The US has deployed a carrier strike group to the region last month and since then there has been a series of attacks against oil tankers in the Gulf of Oman. The Straits of Hormuz is the most important oil choke point. While experts say it would be difficult for Iran to close the strait for a prolonged period. But it does possess small boats that could interrupt shipping as well as submarines that could lay mines. This could hamper the oil & gas exports of the neighboring Arab Nations as a whole. The recent drone attacks & cyber attacks on the Saudi Oil & Petrochemical infrastructure is a citing example of the escalating tensions and hence the defense of Free Trade across the straits is of prime importance and also ensuring stability of oil markets in turn.

Iranian economy
US & Trump Administration from the severe Iranian economy

As per media reports Iran is trying to pass a parliamentary bill to charge toll towards the ships passing through the Strait. The 21 mile wide narrowest point makes the ship pass through the Iranian territorial waters.

In truth this measure is just another threat by Iran to try to

  • Scare off the US & Trump Administration from severe sanctions that has already damaged the Iranian economy.
  • To scare the international community into opposing the US sanctions
  • To demonstrate the government’s strength to the people of Iran

Here is why we feel Iran’s threat will not work

 

  • Iran cannot impose tolls on traffic through the Strait of Hormuz as the strait is a designated international waterway. Tolls could be imposed on Man-made waterways such as the Suez Canal or the Panama Canal with the same country on either side.
  • If Iran was to try this misfortune, there is a list of militaries willing & able to intervene in crisis if any. The US has for long taken the task of ensuring freedom of the seas and if it chooses not to intervene it could do so with the knowledge that other countries are more capable. India has already sent Naval Escort Vessels to protect its vessels in the area. If this situation escalates, then the Gulf Countries whose oil & trade could be impacted could intervene. KSA & the UAE have a formidable air force with billions of dollars of aircraft & weapons purchased from the US. Moreover the UN & other international agencies would turn on Iran as soon as it tries to control this international waterway.

Tanker companies & global businesses will be hesitant to pay tolls to Iran because they do not want to possibly fall in violation of the US sanctions as these cover financial transactions to Iran which could open these companies to secondary sanctions from the US. Moreover they would prefer to get along with the US due to massive market & economic power.

oil exports
oil exports primarily Iran exports
  • Iran is country which depends on oil exports primarily. Iran exports around 2.6 million barrels a day and was the 2nd largest exporter among the organization of oil exporting companies. The world economy depends on free flow of commerce & it is incumbent on all nations to preserve this lynchpin of global prosperity. Tensions between Iran & US and its allies have risen sharply since Washington last year unilaterally withdrew from the landmark nuclear deal signed between Iran & the world powers in 2015. Since then US has stepped up economic sanctions against Iran & moved the country’s oil exports to a zero as a part of a maximum pressure policy to make it halt actions that has undermined regional security. Hence squeezed by sanctions Iran is threatening to disrupt oil flow through this strategic waterway. But it has to understand that any direct action could lead to annihilation of the state of Iran by US & its allies. If any misadventure is tried upon then the world would be at war. Also Militarily, Economically & diplomatically US & its NATO allies are way stronger than Iran. Such an attack could spell to be great news to Saudi Arabia but will create sympathy for Iran in the Muslim World. This could lead to Islamic & Arab countries joining forces with Iran and if this happens it could create a catastrophe of an unthinkable magnitude. So needless to say let’s not allow Iran to galvanize the Muslim World altogether.
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Map

But any more provocations along the Straits of Hormuz could be dealt with even more severe sanctions against Iran and considering the current situation in Iran it will create an economic meltdown in the country. Any blockade will effectively increase the crude oil prices across the world and the whole world community will be against Iran and it will create tensions among its own allies like China which Iran will never want to create. Also the world community will start finding alternate sources and will alienate Iran completely further crippling their already depleted economic might.

Hence this provocation is just a temporary one and will not in any-way affect the world’s oil exports as both sides especially Iran is varied about the consequences and moreover this problem should be solved by discussion rather than armed conflicts.

 

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Story Conceived & written by

Sumit Peer, Founder Insourcing Multiplier

1 Comment

  1. July 25, 2019 - 9:09 am

    When I initially left a comment I appear to have clicked the -Notify me when new
    comments are added- checkbox and from now on every time a
    comment is added I recieve 4 emails with the
    same comment. Perhaps there is an easy method you can remove me from that service?

    Thanks a lot!

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