January 5, 2012 – Iranian Warships Patrol the Strait of Hormuz: Oil Prices Would Skyrocket by as much as 50% in a matter of days, if Iran Closed the Strait of Hormuz. Yesterday, West Texas Intermediate Crude Oil closed at $103.38 a barrel on the NYMEX (New York Mercantile Exchange). The high for 2011 was $116.72 on May 2nd and the low was $75.31 on October 4th.
If Iran were to follow through with its threat to blockade the Strait of Hormuz, a vital transit route for almost one-fifth of the oil traded globally, the impact would be immediate: Energy analysts say the price of oil would start to soar and could rise 50 percent or more within days.
An Iranian blockade by means of mining, airstrikes or sabotage is logistically well within Tehran’s military capabilities. United States officials say the Navy’s Fifth Fleet, based in nearby Bahrain, stands ready to defend the shipping route and, if necessary, retaliate militarily against Iran.
Iran’s own shaky economy relies on exporting at least two million barrels of oil a day through the strait, which is the only sea route from the Persian Gulf and “the world’s most important oil choke point,” according to Energy Department analysts.
Despite deterrents to armed confrontation, oil and foreign policy analysts say a miscalculation is possible that could cause an overreaction from one side or the other. “I fear we may be blundering toward a crisis nobody wants,” said Helima Croft, senior geopolitical strategist at Barclays Capital. “There is a peril of engaging in brinksmanship from all sides.”
Various Iranian officials in recent weeks have said they would blockade the strait, if the United States and Europe imposed a tight oil embargo on their country in an effort to thwart its development of nuclear weapons.
That did not stop President Obama from signing legislation last weekend imposing sanctions against Iran’s Central Bank intended to make it more difficult for the country to sell its oil, nor did it dissuade the European Union from moving toward a ban on Iranian oil imports.
Energy analysts say even a partial blockage of the Strait of Hormuz could raise the world price of oil within days by $50 a barrel or more, and that would quickly push the price of a gallon of regular gasoline to well over $5 a gallon.
Just the threat of such a development has helped keep oil prices above $100 a barrel in recent weeks despite a return of Libyan oil to world markets, worries of a European economic downturn and weakening American gasoline demand.
More than 85 percent of the oil and most of the natural gas that flows through the strait goes to China, Japan, India, South Korea and other Asian nations. But a blockade would have a ripple effect on global oil prices.
Since Iraq, Kuwait, Saudi Arabia, Qatar and the United Arab Emirates all rely on the strait to ship their oil and natural gas exports, a blockade might undermine some of those governments in an already unstable region.
The Iranians have struck in the strait before. In the 1980s, Iran attacked Kuwaiti tankers carrying Iraqi oil, and the Reagan administration reflagged Kuwaiti ships under American flags and escorted them with American warships. Iran backed down, partially, but continued to plant mines.
In 1988, an American frigate hit an Iranian mine and nearly sank. United States warships retaliated by destroying some Iranian oil platforms. Attacks and counterattacks continued for months, and a missile from an American warship accidentally shot down an Iranian passenger aircraft, killing 290 passengers.
“My guess is this is a lot of threats,” said Michael A. Levi, an energy expert at the Council on Foreign Relations, “but there is no certainty in this kind of situation.”
The Master of Disaster