Commentary | January 10, 2012

The Strait of Hormuz: What's at Stake

The Strait of Hormuz has become the latest focal point in a long list of disputes between the United States and Iran. On December 25, 2011, as Iran conducted its fourth day of naval drills near the strait, at the entrance to the oil-rich Persian Gulf, Iranian Vice President Mohammad Reza Rahimi warned that "if sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz.” Admiral Habibollah Sayyari, the commander of Iran’s navy, boasted that closing the Strait of Hormuz would “be easier than drinking a glass of water.”

Sayyari’s statement was swiftly followed by a warning from Washington that any attempt to close the strait would “not be tolerated.” Following these exchanges, the price of oil jumped by $4 a barrel and has remained over $100 a barrel even as Iran concluded its 10-day naval exercises and despite a return of Libyan oil to world markets and weakening U.S. demand. Below, an examination of what is at stake and what might be done to avoid a dangerous conflict in a militarily and economically vital world region: 

The World's Most Important Oil Choke-point

The Strait of Hormuz tops the list of global energy security concerns. Leading into the Gulf of Oman and the Arabian Sea, the strait is the only possible route for tankers transporting crude from the oil-rich states of the Gulf to world markets. Iran controls the strait’s northern coast, while Oman and the United Arab Emirates own the southern coast. The entire strait is only 112 miles long, and at its narrowest point it is only about 21 miles wide.

According to the U.S. Energy Information Administration, daily oil flow through the strait amounted to almost 17 million barrels in 2011, up from between 15.5-16.0 million in 2009–2010, that constituted roughly 35 percent of all seaborne traded oil. Roughly 90 percent of all Gulf oil, or 20 percent of oil traded worldwide, leaves the region on tankers that must pass through this narrow waterway, as land pipelines do not provide sufficient alternative export routes.

A Mounting Standoff

Tensions between Iran and the United States fueled fears of supply disruptions as Iran threatened to take action if the U.S. Navy moved an aircraft carrier, the USS John C. Stennis, back into the Gulf. In most analysts’ assessments, the jump in oil prices was likely to continue as long as Tehran continued its threats to use force against U.S. warships patrolling the strategically vital Strait of Hormuz at the mouth of the Gulf.

The tough rhetoric exchanged between Tehran and Washington over the waterway comes in the wake of the latest wave of sanctions that Washington says are designed to discourage the Iranian state from developing nuclear weapons. Late last month, U.S. President Barack Obama signed legislation imposing sanctions against Iran’s central bank intended to make it more difficult for the country to sell its oil. The Iranian escalation is seen in Washington as evidence that tighter sanctions are finally beginning to bite.

Tougher measures against Tehran are also expected to be announced at the end of this month by EU foreign ministers who have signaled that they will agree to impose an embargo on Iranian oil imports. Iranian officials have made clear they would view an oil embargo as an act of “economic war,” and that they could respond by closing the strait.

Exacerbating these tensions are internal factors in the United States and Iran, where political groups are positioning themselves in anticipation of crucial parliamentary elections in Iran in March and the U.S. presidential elections in November.

The Iranians are pledging not to back down militarily. Iran’s latest military exercise is seen as a clear signal that it has a deterrent capacity, making it capable of inflicting unacceptable harm on anyone thinking of attacking it. Moreover, following the Iranian navy’s exercises, the naval commander for the Islamic Revolutionary Guards Corps (IRGC), Rear Admiral Ali Fadavi, announced that the IRGC’s own drills will take place in February. On the same day, the Israeli military said it was preparing for joint exercises with the United States to rehearse missile defense and cooperation between the forces. Theses maneuvers, which will involve thousands of troops, have been planned for some time and were hailed by Israeli and U.S. officials as their biggest ever joint drill. Hopefully, the massive exercises will remain just that, but with three armies on the playing board, one spark could be enough to ignite an all-out war.

The United Kingdom has also joined the United States in pledging a tough response to any Iranian threat. Philip Hammond, the British defense secretary, said during a visit to Washington: "Disruption to the flow of oil through the strait of Hormuz would threaten regional and global economic growth. Any attempt by Iran to close the strait would be illegal and unsuccessful." Hammond followed on his warning by sending the Royal Navy's newest and most advanced ship, the destroyer HMS Daring, to the Gulf for its first mission. Meanwhile, there is speculation that Israel might attack Iran's nuclear facilities, claiming that it is a front for acquiring nuclear weapons, or at least a capacity to make them.

A Great Power’s Vulnerability  

Although the regional dominance of the U.S. Fifth Fleet, not to mention the other military assets that Washington could deploy from local bases, is not in question, Iran has invested shrewdly in asymmetric warfare capabilities specifically designed to counter U.S. technological superiority. To that end, it has emphasized the procurement of numerous types of guided missiles, many of them placed on light, highly mobile and relatively cheap platforms on land, in the air and at sea.

Iran could also strike at U.S. economic interests in the Gulf, such as oil facilities and tankers, and block ships by laying mines, as it did during its war with Iraq in the 1980s. And, despite the damage that the Syrian uprising is doing to the relationship between Iran and its other Middle Eastern allies, Tehran could still call on Hezbollah and Hamas to inflict as much damage as possible on its adversaries.

The Market’s Watchful Eye  

Extended closure of the Strait of Hormuz would remove one-fifth of the world’s oil from the market causing a supply shock of the type not seen since OPEC’s heyday. Even if the strait were not to physically close, a military conflict in the area could cause oil prices to skyrocket in anticipation of a supply disruption, and prices would remain high until markets are assured that free and safe passage has been restored. A sharp rise in oil prices would prove catastrophic to the world economy. Energy analysts say even a partial blockage of the strait could raise the world price of oil by $50 a barrel or more within days, and that would quickly push the price of a gallon of regular gasoline to well over $4 a gallon in the United States. This would have serious effects on the world economy, and would surely send the United States economy back into recession.

Despite such deterrents to armed confrontation, a miscalculation is possible that could cause an overreaction from one side or the other. If allowed to continue, the current heated-up situation could quickly turn into a military confrontation that would prove disastrous to all parties involved.

Finding A Way Out

More than ever, a de-escalation of tensions is required, and an open line of communication between rival militaries in the Gulf is needed. It is not clear how such de-escalation would take place, but the January 4 surprise trip by Turkish Foreign Minister Ahmet Davutoglu to Tehran could have be designed for such a purpose.

In fact, at a joint news conference on January 5 with Iranian Foreign Minister Ali Akbar Salehi, Davutoglu indicated that he carried a message from EU foreign policy chief Catherine Ashton in regards to the resumption of talks in Istanbul between Iran and the “P5+1” group, composed of the five permanent members of the U.N. Security Council plus Germany. If and when the meeting takes place, the parties would still have to overcome the main obstacle which hindered previous rounds, namely agenda setting. The P5+1 has wanted to tackle the issue of the Iranian nuclear enrichment program, while Iran prefers to include this issue in the overall negotiations over what Iranian Secretary of the Supreme National Security Council Saeed Jalili termed “security issues that affect Iran regionally and globally.”

What is necessary is for Iran, the United States and its allies to return to the negotiating table in order to resolve the litany of grievances and not to allow these grievances to spill over into a military confrontation.

Raymond Karam is a program assistant for EWI's Regional Security Initiative.