Renewed conflict in the Strait of Hormuz pushed the United States to establish an international coalition for maritime security to ensure safe passage of shipping traffic and guarding against further disruption in oil supplies. While such security coalitions have been successful in the past, applying the same approach in the Middle East may not improve conditions and may even exacerbate tensions.
The Strait of Hormuz is the primary shipping route for one-sixth of global oil production and one-third of the world’s liquefied natural gas. On June 13, two international shipping vessels came under attack while transiting the Strait of Hormuz off the coast of Iran. The United States was quick to accuse Iran of perpetrating the attacks and offered compelling evidence. The incident was followed by a number of other maritime incidents which escalated tensions between the United States and Iran.
Support: Major importers of Middle East oil have declined to join Operation Sentinel to patrol the Persian Gulf (Source: Data, Observatory of Economic Complexity; photo of USS Boxer in the Strait of Hormuz, US Navy)
In recent years, the primary concern for the global shipping industry was over threats to vessels in the Red Sea transiting the Bab Al-Mandeb due to the conflict in Yemen. Houthi militants supported by Iran have claimed responsibility for several attacks on shipping vessels including an attack on two Saudi oil tankers in July 2018. That incident led Saudi Aramco officials to suspend all oil shipments through the Bab al-Mandeb. While the Saudi’s resumed oil shipments in the Red Sea, the Iranians and Houthis have continued to threaten Saudi Arabian assets in the region, most recently with a drone attack on Saudi oil facilities that reduced the country’s production by 50 percent.
Despite the recent incidents and rhetoric from Iran about shutting down the Strait of Hormuz to global oil shipping, there has not been a corresponding increase in oil prices, other than a short-term blip. However, other parts of the capital/risk calculus have changed dramatically. There has already been tenfold increases in insurance rates for ships transiting the Strait of Hormuz, according to industry representatives. War risk premiums – paid every time a ship enters the region – have swelled from $30,000 in early 2019 to current rates of $300,000 to $400,000. Additionally, shipping rates for oil and natural gas have also surged as the conflict and related US sanctions, are requiring oil and gas companies to pay record amounts for transporting their product.
To address maritime insecurity in the Gulf region, the United States has worked to establish a collaborative maritime security operation. The success of the international coalition that emerged in 2010 to confront the piracy crisis off the Coast of Somalia has been cited as precedent. Related: Gas Prices Languish As Storage Falls To Near-Record Lows
While that international collaboration was largely a success, Hormuz poses other challenges. Four key differences between the 2010 and current coalitions include:
Geography: In the Indian Ocean off the Coast of Somalia, the shipping vessels transit the coast relatively far from the territorial waters, which reaches out to 12 nautical miles off the coast. This is important, as the 12 nautical miles territorial water designation is established in the United Nations Convention on the Law of the Sea. As many of the attacks were happening beyond territorial waters, deep in the Arabian Sea and Indian Ocean, the international community was not violating the territorial waters of Somalia when it initiated its efforts.
In contrast, in the Strait of Hormuz, the waterway is 21 nautical miles at its narrowest point meaning that operations in the Strait of Hormuz would potentially occur in the territorial waters of Iran or the UAE or Oman.
Role of governments: Somalia welcomed international actors to the region through an appeal to the United Nations. In 2008, the United Nations passed the first resolution to respond to piracy and robbery by non-state actors against ships in the region. This led to the first unanimous decision of the UN Security Council since World War II. It also created the conditions to establish one of the most successful examples of international collaboration as global powers came together in the Indian Ocean and provided a powerful deterrent to acts of piracy in the region.
In contrast, the Strait of Hormuz is under the sovereignty of Iran and Oman. According to the UN Convention on the Law of the Sea, states bordering straits may adopt laws and regulation relating to transit passage through straits regarding the safety of navigation and regulation of maritime traffic. Neither country has welcomed the presence of an international coalition. In fact, Iran has been explicit in its rejection of an international coalition. Iran’s Vice-President Eshaq Jahangirisence said, “There is no need to form a coalition because these kinds of coalitions and the presence of foreigners in the region by itself creates insecurity.”
Nature of the attacks: In Somalia, pirates were hijacking vessels and holding them off the coast for extended periods. During this time, the pirates negotiated for ransoms with the shipping companies that owned the vessels. The presence of international navies were effective in disrupting these activities.
In contrast, military actors executing technically advanced attacks in Hormuz introduced a complexity that was not present in Somalia. Maritime threats are coming from landmines, remote controlled vessels, and jamming GPS according to US officials. Speaking to this, US CENTCOM noted, “Due to the heightened regional tensions, the potential for miscalculation or misidentification could lead to aggressive actions against vessels belonging to U.S., allied and coalition partners operating in the Arabian Gulf, Strait of Hormuz, and Gulf of Oman.”
Guarding trade: Members of Operation Sentinel, protecting the Persian Gulf, have varying levels of Asian trade (Source: Observatory of Economic Complexity)
Role of key international actors supporting the mission: Despite the challenges, the United States has established Operation Sentinel to increase surveillance and security in the Gulf region. According to reports, the United States has asked more than 60 countries to provide assistance. So far, several countries have agreed to support the mission, including several Middle East nations. Related: Is The Aramco IPO The Ultimate Pump And Dump?
France and Germany have both so far declined approaches from the United States to join the mission, and Russia has explicitly rejected the operation. Russian Defense Minister Sergei Ryabkov noted: “We can see once again that the situation is not just explosive. It is fraught with an outbreak of conflict.”
Additionally, China’s role in the coalition is not entirely clear. While China relies heavily on oil from the Strait of Hormuz – and the country played a key role in ensuring security off the coast of Somalia – it is also sensitive to concerns from Iran. China’s head of the International Department of the Central Committee of the Communist Party of China, Song Tao stated; “There are complicated and rapid developments happening on the international stage that have created challenges for the countries of China and Iran, but our resolve and determination is to support Iran’s legal and legitimate rights to development and progress.”
Further complicating the operation is the participation of Saudi Arabia, Bahrain, Israel and the United Arab Emirates. These countries each have complicated regional rivalries in the Middle East, and create risk for further escalation of the conflict.
The September drone attacks on Saudi Aramco oil facilities highlighted the risk, demonstrating that the tensions and vulnerabilities in the maritime space extend to more high prolife targets on land.
The lack of international support for Operation Sentinel offers a glimpse into the challenges of establishing an effective international maritime security coalition in the region. While it is tempting to transfer the successful model used to counter piracy off the Coast of Somalia, the two environments and time periods differ and understanding the stark differences will be key to avoid further escalation of conflict.
By Yale Global
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Furthermore, the Strait of Hormuz is under the sovereignty of Iran and Oman. According to the UN Convention on the Law of the Sea, states bordering straits may adopt laws and regulation relating to the safety of navigation and regulation of maritime traffic. It is not therefore surprising that neither country has welcomed the presence of an international coalition.
The United States is solely responsible for the escalating tension in the Gulf by walking away from the nuclear deal with Iran and imposing sanctions against it. Therefore, it is ironic if not laughable that the country which has been behind the rising tension in the Gulf region and therefore the threat to the Strait of Hormuz is now trying to defend free navigation through the Strait. It is like entrusting a thief of protecting a property he tried to burgle. The logical thing is for the United States to withdraw altogether from the Gulf region leaving the security of the Strait of Hormuz to the two countries entrusted under the UN Convention of the Law of the Sea with protecting it.
That is why the overwhelming majority of countries approached by the United States to join the maritime coalition have declined the invitation particularly France, Germany, Russia and China.
And while escalating tension in the Gulf region has already led to a tenfold increase in insurance rates and huge hikes in shipping rates for oil and natural gas, there has not been a corresponding increase in oil prices.
The reason is that the trade war between the United States and China has dampened the global demand for oil thus widening an already existing glut in the market from a relatively manageable 1.0-1.5 million barrels a day (mbd) before the war to an estimated 4.0-5.0 mbd. This glut was big enough to undermine OPEC+ production cuts, neutralize the impact of geopolitics on oil prices and absorb the loss of 5.7 mbd of Saudi crude oil production resulting from the Houthi’s attacks on Saudi oil infrastructure.
The lack of international support for Operation Sentinel offers a glimpse into the erosion of the global economic, geopolitical and moral influence of the United States. From the shifting sands of the Middle East to Venezuela’s defiance to the rising power of China in the Asia-Pacific region and Russia’s in the Middle East, the United Sates is starting to look like a spent force while the strategic alliance between China and Russia is not on the rise. China, the world’s largest economy based on purchasing power parity (PPP) is wedded to Russia, the world’s superpower of energy with sharp nuclear teeth.
Despite intrusive sanctions, Iran has won the Middle East war without even firing a shot in anger. Its allies, the Houthis of Yemen, have taken the Saudi oil industry hostage. As a result, Saudi Arabia is working now on ending the war in Yemen and seeking some form of a rapprochement with Iran.
Iran strategically dominates the Middle East through its allies in Syria, the Hashd al-Shaabi (Popular Mobilization Units) in Iraq, the Houthis in Yemen, Hizbullah in Lebanon and Hamas in Palestine. It also controls the Strait of Hormuz and is capable of taking the global economy hostage by precipitating a global oil crisis and pushing oil prices to $140 a barrel.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
-Best if we were not so dependent on oil. How we become less dependent should be of major focus -- not just a military one to maintain supply.