Words of Warning?
Driving past my gas station in the Old Dominion a couple of days ago, I noticed that gas prices had jumped .20 a gallon over night. And, it didn't take an energy expert to figure out why. With Iran conducting naval exercises near the Strait of Hormuz (and making vague threats about possibly shutting down the strategic waterway), global oil markets are getting nervous.
Indeed, some oil analysts are now talking in near-apocalyptic terms. From OilPrice.com:
The pieces and policies for potential conflict in the Persian Gulf are seemingly drawing inexorably together.
Since 24 December the Iranian Navy has been holding its ten-day Velayat 90 naval exercises, covering an area in the Arabian Sea stretching from east of the Strait of Hormuz entrance to the Persian Gulf to the Gulf of Aden. The day the maneuvers opened Iranian Navy Commander Rear Admiral Habibollah Sayyari told a press conference that the exercises were intended to show "Iran's military prowess and defense capabilities in international waters, convey a message of peace and friendship to regional countries, and test the newest military equipment." The exercise is Iran's first naval training drill since May 2010, when the country held its Velayat 89 naval maneuvers in the same area. Velayat 90 is the largest naval exercise the country has ever held.
The exercises have put Iranian warships in close proximity to vessels of the United States Fifth Fleet, based in Bahrain, which patrols some of the same waters, including the Strait of Hormuz, a 21 mile-wide waterway at its narrowest point. Roughly 40 percent of the world's oil tanker shipments transit the strait daily, carrying 15.5 million barrels of Saudi, Iraqi, Iranian, Kuwaiti, Bahraini, Qatari and United Arab Emirates crude oil, leading the United States Energy Information Administration to label the Strait of Hormuz "the world's most important oil chokepoint."
As the article notes, Iran's naval exercise comes on the heels of its recent "capture" of a U.S. RQ-170 reconnaissance drone. Tehran claims it successfully hacked into the aircraft's guidance signal, forcing it to land in Iranian territory. Military spokesmen say Iran is demonstrating its full range of military capabilities during the exercise, utilizing surface vessels, submarines, aircraft, drones and other assets.
But, as we've pointed out before, care must be taken in estimating Tehran's tactical abilities. For example, Iran's naval forces look impressive enough on paper, until you consider that many naval units only rarely put to sea, including its diesel submarines. There's also the critical matter of airpower; Tehran would quickly lose air superiority over the strait in a battle with the U.S., leaving ships, subs, and land-based missile sites even vulnerable to attack.
Still, Iran doesn't need to win a protracted struggle with American forces to effectively close the Strait of Hormuz. Once the first tanker hits a mine, or is struck by a missile, insurance underwriters will stop issuing coverage for commercial traffic in the region, reducing the flow of crude to a trickle--with a corresponding (and predictable) impact on oil and gas prices. Even a brief interruption in oil traffic through the strait would send prices skyrocketing towards the $200 level mentioned into today's analysis.
Why would the mullahs choose such a path? For a variety of reasons, including retaliation for new sanctions being imposed by the United States. By closing the strait--even for a few days--Iran believes it can strike a telling blow against the west, and undercut U.S. efforts to punish Tehran. It would also serve another, key geopolitical purpose: demonstrating that Iranian power is on the ascendancy, while America slowly withdraws from the Persian Gulf region.
Late today, GOP presidential candidate Ron Paul said new sanctions against Iran were "acts of war." Go figure. So far, the Obama Administration seems willing to stay the course, and risk the consequences of further adventurism by Tehran. In reality, they have little choice. Washington has been ignoring the Iranian menace for far too long and we're facing the potentially dire consequences of our own inaction.