Strait Talk

...

The Achilles Heel of Western economic growth

The Iranian economy is sinking under the international sanctions regime, and the trend toward lower crude oil prices isn't helping.  The Tehran regime has been casting about for a way to push back against the sanctions without getting into a shooting war, but in parallel with that effort has been a war of words primarily intended to influence the price of oil.  Persian gulf oil exporters and shippers take very seriously the Iranian threat to close the Strait of Hormuz.  The US responds with increased naval and air forces in the region, and an ongoing patter of statements intended to reassure the oil shipping community that the US has the ability to keep the oil flowing.

Yesterday, in the latest statement in furtherance of that effort, US Defense Secretary Leon Panetta said:

"The United States is fully prepared for all contingencies here. We've invested in capabilities to ensure that the Iranian attempt to close down shipping in the Gulf is something that we are going to be able to defeat, if they make a decision to do that."

Now we know this is primarily intended to reassure jittery markets and keep the shippers from pricing in the risk of either an outright closure of the shipping routes or a hot war. But is it true? Is it possible to evaluate the effect of Iranian economic warfare on Persian Gulf oil prices? I think, if you step outside the bubble and ignore the thoughtless stenography of the media, then you can do precisely that.

First, is Iran likely to take preemptive action in the Strait?  At this point, probably not, but there are two sets of conditions where we could see exactly that, and both are getting more, not less likely as time passes.  The first is if the sanctions become so onerous that the regime feels threatened.  At some point, if you make conditions intolerable for your enemy, they will come out and fight.  It's possible that we're closer to seeing sanctions start a war than we are to seeing them prevent one.  The other is if the Iranian leadership reaches the conclusion that war is inevitable.  If they know that there is nothing short of abject surrender that they can do to prevent an attack, they may very well conclude that there is a significant "first mover advantage".  And there can be no doubt that they are at a serious military disadvantage, so they will recognize that their strengths in any conflict scenario are asymmetric warfare, missile strikes on regional population centers and economic warfare against Gulf oil shippers.

The important questions to ask are these: First, what actions might we expect the Iranians to actually take in an effort to close the Strait of Hormuz to shipping? And second, to what extent can they have an impact on crude oil prices?  In answer to the first question, with its aging fleet of warplanes crippled by a lack of spare parts, we should not expect to see air attacks.  They would certainly deploy a large number of mines, but sea mines are in many ways obsolete and that threat should be easily dealt with by the US navy.  That leaves missiles - fired both from mobile launchers on the southern coastline and from a growing fleet of small, fast missile boats.  American air and sea power can suppress a great deal of these missile attacks, but it's difficult to believe that they can do so with 100% success.

And even if they did, it wouldn't matter very much.  The goal of the Iranians would not be to sink tankers, but to drive up the cost of crude in order to damage the Western economies.  And with the very first missile or mine, the cost to insure a tanker transiting the Straits of Hormuz would skyrocket.  The amount of oil coming out of the Gulf would be reduced in any event, and the price of crude would rise dramatically. So ultimately, any claim that Iranian economic warfare would fail is either naive or self-serving.
...