Trade Resources Market View Iranian Military Was Set to Practice Closing The Strategic Strait of Hormuz

Iranian Military Was Set to Practice Closing The Strategic Strait of Hormuz

Many of you may already know that an Iranian lawmaker on Tuesday said his nation's military was set to practice closing the strategic Strait of Hormuz as part of upcoming military exercises. What you may not know is why that matters to Americans, even though the U.S. doesn't import a drop of oil from Iran.

First, a little economic history. While the U.S. gets no oil from Iran, many of our allies do. Iran is currently the world's fourth-largest oil exporter, behind only Saudi Arabia, Russia and the United Arab Emirates, at about 2.4 million barrels per day, and the bulk of its oil goes to Europe.

Any disruption in that flow, whether caused by an embargo imposed by the West or by Iranian military action would be difficult to replace, say OPEC officials, and would lead to dramatically higher oil prices, both for Europe and the U.S. In fact, mere rumors that Iran had already closed the Strait caused oil prices to spike Tuesday by as much as $2.50 a barrel in Europe and on Wall Street.

The Strait is the world's most vital transit point for oil; 40 percent of the world's supply travels through the Strait on its way to dozens of countries. Japan alone obtains 75 percent of its oil through the Strait, and since Japan produces little oil for itself, you can imagine what kind of an impact any disruption would have on the world's third-largest economy.

The Strait is bordered by the Gulf nations of Kuwait, Oman, Qatar, the United Arab Emirates and Saudi Arabia to the west and Iran to the east. It is only 21 miles wide at its broadest point and six miles at its most narrow. Some estimates say about 17 billion barrels of oil per day pass through the Strait, and only a small percentage of it - about 3 billion barrels - could be redirected if the Strait were closed.

But in reality, Iran's threat may be more bluster than substance, and here's why. In terms of military capacity, the U.S. has a substantial naval presence in the Gulf, primarily because it's in our national security interests to do so. Other countries also have a significant naval and military presence because it is in their interests to do so as well. Iran, on the other hand, has only a fraction of our naval capability, and while Tehran's military may be able to deploy other weapons - anti-ship missiles and mines, for example - ultimately they would be no match for American and Western countermeasures.

Economically, the vast majority of Gulf nations depend on oil income to sustain their economies, and Iran is no different. The CIA World Factbook estimates that Iran derives 60 percent of its annual budget from oil revenues, and if Tehran tries to block the Strait, Tehran also won't be able to export any oil, resulting in significant loss of income.

Strategically, according to according to a Heritage Foundation study, the effects of any Iranian attempt to block Gulf oil shipping would be minimal, in terms of disrupting supplies and raising oil prices. The U.S. and its allies would immediately dispatch sufficient military and naval forces to protect shipping lanes, and Iran would likely bear considerable response if it were responsible for destroying tankers or otherwise impeding the transit of oil and other commerce. European nations would likely bear the brunt of price increases, but experts believe those would be temporary.

Iran, experts say, might be able to successfully block the Strait for one week, but after that, shipping would slowly and steadily improve. In the end Iran would most likely suffer from any attempted blockade of the Strait of Hormuz.

[Editor's note: The sources cited here may not be aware of the advanced "secret weapons" reportedly possessed by Iran that would allow it to destroy any ships attempting to move through the straight. If these weapons exist, the actual threat to global oil supplies may be greater than what is conventionally admitted.]

Source: http://www.naturalnews.com/034408_Straight_of_Hormuz_Iran_oil_supply.html
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Closing The Strait of Hormuz: What The Iranian Threat Really Means
Topics: Metallurgy