10 February 2010 Closing the Strait of Hormuz – An Ace up the Sleeve or an Own Goal? Leighton G. Luke Manager FDI Indian Ocean Research Programme Summary As the diplomatic manoeuvring surrounding the Iranian Government’s nuclear programme continues, so too does the possibility that Iran might attempt to interdict traffic passing through the Strait of Hormuz or even to close the waterway entirely. The Strait of Hormuz is a key energy shipping lane and the planet’s most crucial chokepoint. Such a move would have profoundly negative consequences, not just for the hydrocarbon exporters of the Persian Gulf, but also for the global economy and Iran itself. Analysis The Strait of Hormuz is the most crucial of all the world’s chokepoints. It links the otherwise enclosed waters of the Persian Gulf with the Arabian Sea and the Indian Ocean via the Gulf of Oman, with the Islamic Republic of Iran occupying its northern shores and the Sultanate of Oman’s Musandam Peninsula to the south. The two 3.2 kilometre wide shipping lanes (one Source: Adapted from Perry -Castañeda Library Map Collection, University of Texas, Austin. lane in each direction), separated by a buffer zone also 3.2 kilometres in width, are located just inside Omani territorial waters. Approximately 32 kilometres across at its narrowest point, the Strait is the conduit through which the majority of the Middle East’s hydrocarbons exports must pass before they can power the global economy. Ninety per cent of the Persian Gulf’s oil exports, more than 40 per cent of globally traded sea-borne oil (between 16.5 and 17 million barrels per day (bbl/d)), and the liquefied natural gas exports from LNG giant Qatar, transit this confined waterway. Keeping the Strait of Hormuz open is therefore vital not only to regional producers and Western energy consumers such as the United States, Europe, Japan and Australia, but to the world economy in general. Naval Mines Likely Method The only state likely to attempt to close the Strait of Hormuz is Iran; the best method available for it to do so is the use of naval mines. Indeed, Iran has threatened shipping in the Persian Gulf on a number of occasions and has already used mines to do so. During the so- called “Tanker War” phase of the 1980-88 Iran-Iraq War, Iran laid a number of naval mines in the Persian Gulf, one of which struck the USS Samuel B. Roberts , a patrolling United States guided missile frigate, resulting in the death of over 30 crewmembers. While the incident did not sink the vessel, nor did it take place in the Strait of Hormuz itself, it nevertheless demonstrated the vulnerability of shipping to mine damage. Despite advances in mine clearing and countermeasures, it is a vulnerability which still remains. With the obvious discrepancies between the Iranian and US military forces and the relative ease with which the US could destroy even the mobile batteries of anti-ship missiles installed along the Iranian shoreline, Iran’s ability to close or, at least, threaten, the Strait of Hormuz hinges on its capacity to deploy mines. Hormuz Closure as a Negotiating Tool While it is not the purpose of this paper to delve deeply into the exact circumstances under which Iran may feel compelled to attempt to close the Strait of Hormuz, it is nonetheless worthwhile to note them at least briefly. The Islamic Republic’s threats to close Hormuz are inextricably entwined with the country’s nuclear programme. Tehran no doubt views this ability as an integral component of its negotiating strategy; while it may not yet actually possess a nuclear weapon, the capacity to cut off the lifeblood of the world economy is potentially – despite the pitfalls of retaliation – an ace up its sleeve. Speculation that Iran might attempt to close the Strait followed the declaration on 8 February 2010 by Supreme Leader and Commander-in-Chief, Ayatollah Ali Khamenei, that on 11 February (the 31 st anniversary of the Iranian Revolution), ‘the Iranian nation … will punch the arrogance (of the West) … in a way that will leave them stunned’. Some time previously, in August 2008, the commander of the Revolutionary Guard, Mohammad Ali Jafari, went on record as threatening to close Hormuz if negotiations over the nuclear programme did not go Iran’s way. The United States is equally on the record, however, in stating that no country would be permitted to close the Strait, even if it had the capacity to do so, which the US felt that Iran lacked. Eighteen months on, analysts remain of the opinion that, despite its rhetoric, Tehran could still not actually close the Strait of Hormuz and that, as before, its best option would Page 2 of 5 be to instil fear into energy markets and consumers through disruption. By unsettling energy markets and pushing up marine insurance premiums with a few well-publicised detonations, even a relatively small quantity of mines could produce results. For Iran, the problem, of course, would be getting those mines into the shipping lanes under the watchful eye of the US Navy, which monitors the waterway very closely. Nevertheless, were Iran to succeed in laying the mines, they would continue to achieve results until such time as allied forces and commercial traffic could be certain that the shipping lanes were completely cleared as, despite technological advances, mine clearing remains a relatively slow and under-resourced process. In the absence of a nuclear arsenal, an ability – either perceived or actual – to close the Strait of Hormuz is therefore Iran’s greatest weapon. Even the threat of closure would be sufficient to unnerve the global economy as it recovers from the global financial crisis, with prices for the region’s oil and liquefied natural gas (LNG) products certain to rise, as would maritime insurance premiums. It is for that reason that some analysts, such as the Stratfor organisation, have described a threatened closure of the Strait of Hormuz as Iran’s real nuclear weapon. It is an apt description because, as would be the case with using an actual nuclear weapon, closing the Strait of Hormuz would also ultimately inflict significant pain on Iran itself. That pain would most likely come in the form of retaliation from the United States or Israel – possibly even from Iran’s Arab neighbours – not to mention additional damage to the already faltering Iranian economy. Effects of Closure In the hypothetical event that Iran were to successfully close the Strait of Hormuz, what might be the effects of that closure? To begin with, it is important to note that the following consequences, although speculative, are centred on what is very much a worst case scenario: that Iran has not only been able to close the Strait to all traffic, but that it is also able to maintain that closure for some time. A disruption or a brief closure would most likely result in a spike in the spot prices for oil and LNG that would lessen as mines were cleared and traffic returned to normal levels. A brief disruption would not be sufficient to produce the results below. In a worst case scenario, with the Strait of Hormuz closed for a lengthy period, the effect on the global economy would be significant. Deprived of its lifeblood, with oil and LNG supplies from the Persian Gulf severely curtailed or completely cut off, the global economy would be likely to contract once again in the face of higher energy prices. In such circumstances, the spot price per barrel of oil would quickly break through the US$100.00 ($115.00) mark and would likely continue to rise until the Strait could be re-opened and normal supply resumed. The effects would be felt even more acutely in those economies still slowly emerging from the recent economic slowdown. As other analysts have noted, closing Hormuz during a recessionary period would – at least in the very short term – have provided Iran with the most “bang for its buck”, with the pain decreasing as the world moves further out of the recessionary cycle. For the US, however, as the world’s largest energy consumer and stuck in a quagmire of 10 per cent unemployment and government deficits in the region of US$1.5 trillion ($1.7 trillion), the lengthy recovery process leaves it especially vulnerable. Page 3 of 5 That vulnerability is, however, the very reason why the US would not tolerate a closure of the Strait of Hormuz. Some oil and LNG could still leave the Persian Gulf via Saudi Arabia’s East-West pipeline to the Red Sea port of Yanbu al-Bahr, which has a capacity of five million bbl/d. The Abqaiq- Yanbu al-Bahr LNG pipeline, running parallel to the East-West pipeline, has a capacity of 290,000 bbl/d and would facilitate LNG exports. Even at full capacity, however, the quantities would simply be insufficient to meet demand and offset the higher prices. Even in the event that Iran were unable to completely close Hormuz and succeeded in merely restricting traffic through the Strait, energy consumers would still face higher prices due to curtailed supply and as a consequence of the higher insurance premiums levied by marine insurers for any vessels attempting the passage. For Iran, already dependent on imported petroleum and with a stagnating economy largely dependent on oil and gas exports, closing the Strait of Hormuz would be a risky strategy. It might very well invite direct military retaliation from the US or Israel – or even a coalition force – potentially resulting in the loss of military personnel and assets, infrastructure and, perhaps, the destruction of the country’s nuclear facilities.