Though unrealistic, Iran’s Hormuz threats are a cause for concern

Though some Gulf countries have readied themselves to deal with Iranian aggression, tension in the region risks increasing.
Sunday 15/07/2018
Bargaining chip. An Iranian security personnel looks on at oil docks at the port of Kalantari, east of the Strait of Hormuz. (Reuters)
Bargaining chip. An Iranian security personnel looks on at oil docks at the port of Kalantari, east of the Strait of Hormuz. (Reuters)

Iran has recently threatened to block crude shipment in the Arab Gulf, increasing risks of inflaming tensions that could send shockwaves as far as Asia and the Americas. However, given the economic and military risks involved — and Iran’s history of empty threats — such a manoeuvre is unlikely.

Angered by US sanctions on his country’s oil exports, Iranian President Hassan Rohani threatened to block the strategic Strait of Hormuz, saying no one would benefit from the United States’ decision to pull out of the Iran nuclear accord.

Major-General Mohammad Ali Jafari, commander of Iran’s Islamic Revolutionary Guard Corps (IRGC), echoed the president’s remarks, saying his forces that patrol the Strait of Hormuz were ready to put those threats into action.

The Iranian threats produced a chain reaction, with US Central Command spokesman US Navy Captain Bill Urban saying Washington and its allies were prepared to defend the strait and defence experts and energy analysts explored the implications of Iran’s threats.

While they seem harrowing, the threats are nothing but hot air. Iran well knows that any military confrontation with the United States, whose capabilities are far superior to Tehran’s, would be an irreversible mistake. Not only are global powers more likely to ally with Washington to protect their interests, a military escalation would further damage Iran’s foundering economy and fuel popular discontent.

Such threats by Iran are not new. Since 2008, the IRGC has continually threatened to shut down the Strait of Hormuz without ever following through.

In June 2008, Jafari said that if either Israel or the United States attacked Iran, it would seal off the Strait of Hormuz. In 2016, Iran again tried to use its hold on the key choke point to pressure Washington, with Brigadier-General Hossein Salami, deputy commander of the IRGC, vowing to close the passageway to any “threatening” ships, such as US Navy vessels.

What this trend shows is that Tehran’s continued threats are unlikely to provoke a military clash. However, they do run the risk of spooking oil markets.

Indeed, with 20-30% of global crude exports passing through the Strait of Hormuz, Iran’s threats cannot be taken lightly. In the unlikely event the Islamic Republic does act on its ill-advised threats, oil prices would see an unprecedented hike — perhaps to $300 per barrel.

This, however, would come with many negative consequences for Iran, including turning key partners that rely heavily on Iranian crude, such as China, India and Turkey, against it.

A recent report by Bloomberg News stated that trade between Tehran and Beijing had doubled to $28 billion since 2006, with the biggest chunk of Iran’s oil exports — some $11 billion a year — going to China. In June, Iran exported some 560,000 barrels of crude oil and gas condensates to India and China, said.

Iran blocking the Strait of Hormuz would jeopardise the economic interests of Arab Gulf countries, including Saudi Arabia and the United Arab Emirates, which are already at loggerheads with Tehran. Qatar, which exports about 3.7 billion cubic feet of liquefied natural gas per year through the strait, would also be hit hard, imperilling its warming ties with Tehran.

Kuwait would have the greatest cause for concern. With the Strait of Hormuz its only passageway for oil exports — 2 million barrels of which are exported per day — the country risks being hit hardest by the closure of the Strait of Hormuz.

For Kuwait, one possible solution would be to export oil through Oman using pipelines or via Saudi Arabia through the Red Sea. As for Qatar, whose borders are closed and that has no access to neighbouring airspace, the matter would be much more complex.

Some Arab countries have attempted to find alternative shipping routes. Saudi Arabia and the UAE have pipelines that can ship crude oil outside of the Arab Gulf and have additional pipeline capacity to circumvent the Strait of Hormuz.

By the end of 2016, the two countries’ total available crude oil pipeline capacity was an estimated 6.6 million barrels per day (bpd), with some 3.9 million bpd of unused bypass capacity.

Saudi Arabia has the nearly 1,230km Petroline, also known as the East-West Pipeline, which runs from the Abqaiq complex to the Red Sea. With the system operating at full capacity, Saudi Arabia’s spare oil pipeline capacity is increased from 1 million bpd to 2.8 million bpd. Saudi Arabia also operates the Abqaiq-Yanbu Natural Gas Liquids pipeline, which has a capacity of 290,000 bpd.

The UAE operates the Abu Dhabi Crude Oil Pipeline (1.5 million bpd), which runs from Habshan to the port of Fujairah on the Gulf of Oman, allowing crude oil shipments to circumvent the Strait of Hormuz. Abu Dhabi is planning to increase that pipeline’s capacity to 1.8 million bpd.

Though some Gulf countries have readied themselves to deal with Iranian aggression, tension in the region risks increasing. While it is true that Tehran has lost credibility repeatedly giving out empty threats, Arab Gulf countries should continue to find ways to bypass the Strait of Hormuz. Only then can Tehran’s belligerent rhetoric be ignored for what it is: toothless and irrelevant.