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Threat by Iran Adds to Specter of Conflict in Oil Lane

Wall Street Journal

7 January, 2011

U.S. officials and the international oil industry have a nightmare scenario: A desperate Iran, itching to strike back against the West for its sanctions, attempts to block the flow of oil through the strategic Strait of Hormuz.

U.S. and British officials have vowed to use force to unclog the international waterway, the narrow outlet through which one-fifth of the world's oil trade exits the Persian Gulf.

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Such action is still in the realm of posturing. But as rhetoric intensifies and economic pressure mounts on a divided Iranian regime, officials and analysts are concerned that Iran could misstep or overreach, sparking a conflict.

The latest in a series of provocations came Friday, when Tehran said it plans military maneuvers in the Strait of Hormuz. The announcement came just days after the Iranian navy concluded exercises in the nearby Gulf of Oman.

The new maneuvers, planned for the coming weeks, are potentially more menacing. They will take place in and around the strait itself and will involve Iran's Revolutionary Guard Corps navy, which is responsible for coastal defense in the strait and the Persian Gulf. 

Revolutionary Guard naval commanders have greater leeway than those of Iran's regular navy, and favor guerrilla-style tactics, including swarms of fast-moving attack craft, mines, and mobile antiship missiles.

"Today the Islamic Republic of Iran has full domination over the region and controls all movements within it," Adm. Ali Fadavi, naval commander for the Revolutionary Guard, said in remarks reported by the Fars news agency. There was no immediate reaction from U.S. officials.

In the past two weeks, Iran has threatened to close the Strait of Hormuz, to restrict foreign warships, and to ban a U.S. aircraft carrier from the strait. Each time, U.S. officials responded with an implicit threat of force.

U.S. officials see Iran's threats as a response to punitive sanctions by the U.S. and its allies, to Iran's own weakening economy and for domestic consumption ahead of elections in March.

"Right now, a lot of this is political rhetoric—the reality on the water just doesn't match up," said Jonathan Rue, a former U.S. Marine and an analyst at the Institute for the Study of War in Washington. "I'd be shocked if they were actually to follow through on any of their threats—there's just no upside," he added.

Still, defense analysts and Iran experts say there are reasons to worry. Just as a U.S. oil embargo in the early 1940s pushed a hostile Japan into miscalculations that proved suicidal, U.S. economic pressure on Iran could provoke a desperate response from a regime that feels it is under siege, said Fred Kagan of the American Enterprise Institute.

In the past week, President Barack Obama authorized U.S. sanctions against Iran's central bank, which handles the country's oil revenue, and European Union member states agreed in principle to an embargo on Iranian oil, part of an effort to press Tehran to dial back its nuclear program.

Vital Passage

The Strait of Hormuz is the world's most important oil-trade route

Almost 17 million barrels a day of oil flowed through in 2011, roughly 35% of all seaborne traded oil, or almost 20% of oil traded world-wide.

Last year, 14 crude oil tankers a day passed through on average. More than 85% of these exports went to Asian markets.

The strait is 21 miles wide at its narrowest point, but its shipping lanes are only two miles wide, separated by a two-mile buffer zone. It is still deep and wide enough to handle the world's largest crude oil tankers, with about two-thirds of oil shipments carried by tankers in excess of 150,000 deadweight tons.

Closure of the strait would require longer alternate routes or overland pipelines including the 745-mile East-West Pipeline across Saudi Arabia to the Red Sea. Some oil could be pumped north via the Iraq-Turkey pipeline to the Mediterranean.

--U.S. Energy Information Administration

This month Iran's crude-oil exports to China, its largest export customer, are expected to fall by almost 40% because of a dispute over pricing and other contract terms between Chinese and Iranian state oil companies, a person familiar with Iran's oil sales said. China has declined to join international efforts to deprive Tehran of revenue.

U.S. officials say they believe Iran's threats to close off the Persian Gulf were an attempt to rattle oil markets and drive up prices. Similarly, U.S. officials said that statements from the Pentagon vowing to keep traffic moving were meant reassure allies and calm markets, which responded anxiously to Iran's threats.

Officials and experts who have studied the chance of conflict and potential U.S. responses said any clash most likely would take place at sea. Iran has embarked on an ambitious naval expansion plan meant to give it the muscle to be a stronger regional power.

The Revolutionary Guard Corps Navy commander, Adm. Fadavi, is a veteran of the so-called tanker wars that took place as part of the Iran-Iraq war of the 1980s. As the two warring countries targeted one another's vessels, U.S. warships tried to ensure the free flow of commercial traffic. After a U.S. vessel was damaged by an Iranian mine, American forces sank five Iranian ships.

Tension this time could turn violent in any of several ways, experts say.

Iranian officials have proposed legislation barring foreign warships from sailing through the strait without permission. The U.S. Navy routinely challenges such attempts to curtail freedom of navigation, even those made by allies, by steaming warships through international waters, dozens of times each year.

U.S. officials said this week that they consider the Strait of Hormuz international waters, and will continue normal deployment of U.S. warships.

Iran also could use its own boats and planes to try to harass oil tankers passing through the strait, much as it did during the Iran-Iraq war of the 1980s.

Finally, Iran could try to close the Strait of Hormuz entirely. The surest way to do that would be to mine the two-mile-wide shipping channels through which tanker traffic passes, though experts said that would be very difficult given the international surveillance of its naval activities.

If Iran could lay the mines, it would force the U.S., U.K. and allies to laboriously clear the strait. Doing so first would require destroying Iran's antiship missiles, its small attack craft, and finally using minesweepers to clear the waterway.

The entire process could take well over a month, experts said.