Military strategists appear to have missed a foreseeable outcome in their efforts to pressure Iran.
As the temperatures are rising in the Mideast, as reader chatter about Turkey’s involvement in Syria attests, a Financial Times article describes how the success of economic sanctions against Iran have strengthened its ability to make credible threats to restrict oil shipments.
Market participants have long discounted the idea that Iran would restrict the flow of oil through the Strait of Hormuz, a comparatively narrow channel though which 35% of the world’s oil supplies pass. Threatening cargo ships would also interfere with Iran’s own oil shipments, far and away its biggest source of foreign exchange, and critical food imports.
But that dynamic has now changed. As the Financial Times notes (hat tip Scott):
Sanctions imposed over Iran’s nuclear programme have grown tighter, and the effects are being felt across the country. Fears are rising that Iran’s leadership, facing increasing domestic unrest over spiralling inflation, has less and less to lose through brinkmanship in the channel now that its own oil income is being squeezed to a trickle. For years, oil traders were inured to rhetoric from Iran that it stood poised to shock world energy markets by blocking the seaway in retaliation for sanctions or an Israeli attack. They were sceptical it would engineer a crisis in a region so critical to its own economic survival. But Iran’s plummeting oil exports mean that a cornered Tehran could see a confrontation in the strait as less an act of self-immolation and more a calculated gamble.
It’s a bit disingenuous to put responses to sanctions in the same boat (no pun intended) as a military attack. Israel and the US have been saber-rattling at Iran for years; it’s hard to imagine that Iran would not engage in an aggressive retaliation, and either blocking the strait or launching strikes on cargo ships is a blindingly obvious move (it’s not as if Iran’s enemies aren’t going to be interfering with its shipments at that point). Readers have also pointed out that Saudi refineries are within easy strike distance.
Saudi Arabia and Abu Dhabi have opened new pipelines that will considerably reduce the importance of the Strait of Hormuz, but they won’t be operating at full capacity for 18 months. And even then, the new facilities don’t neuter the Iranian threat, but merely make the effects somewhat less severe. So Iran still has considerable leverage as well as motive to act. And remember, even though Iran has always insisted it would respond fiercely to an onslaught, as opposed to be an aggressor, it has means for applying pressure that fall short of an attack. Again, from the FT:
Fearing Mr Ahmadi-Nejad could seek a diversion through international sabre-rattling, policy makers say that Iran could easily find ways to disrupt world energy supplies without a direct attack. Some argue it could board every supertanker transiting its territorial waters under other pretexts, such as inspecting for weapons smuggling. Others fear it could even use proxies to fight its war, with terrorist organisations carrying out attacks. Those actions would both slow oil flows and push up prices. Tehran would win a double victory: continuing its own remaining oil sales while benefiting from higher prices. Amrita Sen, senior oil analyst at London-based Energy Aspects, says that domestic pressure and economic collapse could force Tehran back to the negotiating table over its nuclear programme. “But, on the other hand, it also makes more likely a provocative action by Ahmadi-Nejad.”
Since the West does not have a good direct response to this basic problem, it is sending more men and material into the region:
Seeking to counter Iran’s influence, many nations are building up their military presence in the Gulf. September’s drills involved dozens of warships from, among others, the US, the UK, Japan, France, New Zealand, the Netherlands, Italy, Australia and Canada. Lieutenant Greg Raelson, a spokesman for the US fifth fleet, which often keeps one of its aircraft carriers in the Gulf, stressed the Strait of Hormuz was critical to “fuel economies around the globe”.
And protection does not come cheap:
It is almost impossible to calculate the cost of policing the Gulf but Sherife AbdelMessih, chief executive of Future Energy Corporation, provides a back-of-the-envelope approximation: that the US spends roughly $90bn on its Bahrain-based fifth fleet or about $15 per barrel that crosses Hormuz.
Now we know why Obama is so keen to talk about fracking. It solves more than one problem.