As the first round of U.S. sanctions on Iran kicked in earlier this month and the second round of sanctions—including on Iranian oil exports—is set to snap back in early November, the Islamic Republic is stepping up rhetoric about controlling the most vital oil flow chokepoint in the world, the Strait of Hormuz.
On Monday, General Alireza Tangsiri, the head of the navy of Iran’s Revolutionary Guards, was quoted by Iranian media as saying that Iran had full control of the Persian Gulf and the Strait of Hormuz.
“There is no need for foreigners such as the United States and the countries whose home is not here,” Tangsiri was quoted as saying by Iran’s PressTV.
U.S. Secretary of State Mike Pompeo said later on Monday in a statement posted on Twitter: “The Islamic Republic of Iran does not control the Strait of Hormuz. The Strait is an international waterway. The United States will continue to work with our partners to ensure freedom of navigation and free flow of commerce in international waterways.”
The Strait of Hormuz is the world’s most important chokepoint, with an oil flow of 18.5 million bpd in 2016, the EIA estimates. The Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea and is the key route through which Persian Gulf exporters—Saudi Arabia, Iran, Iraq, Kuwait, Qatar, the UAE, and Bahrain—ship their oil. Only Saudi Arabia and the UAE have pipelines that can ship crude oil outside of the Persian Gulf and have additional pipeline capacity to bypass the Strait of Hormuz, which is a route of more than 30 percent of daily global seaborne-traded crude oil and petroleum products and more than 30 percent of the liquefied natural gas (LNG) flows.
Some 80 percent of the crude oil shipped through the Strait of Hormuz goes to Asian markets, EIA has estimated using data from Lloyd’s List Intelligence tanker tracking service. China, Japan, India, South Korea, and Singapore are the largest destinations for oil moving through the Strait of Hormuz.
Before the previous Western sanctions were imposed earlier this decade, Iran also threatened to block the Strait of Hormuz, and although analysts think that it would struggle to do so due to the U.S. naval presence in the area, a further flare-up in the Tehran-U.S. relations could be a risk to the oil flows in this vital global chokepoint.
Earlier this month, the U.S. Central Command said that there was increased Iranian military activity in the Strait of Hormuz.
A few days earlier, U.S. Defense Secretary James N. Mattis told Pentagon reporters, commenting on Iran’s threats to close the Strait of Hormuz at the end of July:
“Clearly, this [closure] would be an attack on international shipping and could have an international response to reopen the shipping lanes … because the world’s economy depends on those energy supplies flowing out of there.”
According to the August 6 report ‘Iran’s Threats, the Strait of Hormuz, and Oil Markets: In Brief’ by the Congressional Research Service, “Threats of U.S. sanctions that could reduce Iran’s oil export earnings is a key impetus to Iran’s threats to close the Strait of Hormuz.”
However, due to its own dependence on trade via Hormuz, “Iran may be unlikely to attempt to close the waterway, but rather to shape the international debate on Iran policy,” Michael Ratner, Specialist in Energy Policy, writes in the report.
Referring to Iran’s options regarding the Strait of Hormuz, the report points out that an outright closure is a “low probability event” and even if Iran manages to pull it off, it is unlikely to be prolonged because it would trigger military response from the U.S. and other countries to keep freedom of navigation in the area. Harassment of tankers or infrastructure damage, if Iran were to use that, could send oil prices higher, but also “runs the risk of triggering a military response and alienating Iran’s remaining oil customers,” according to the report.
Iran, however, could continue to make threats about the Strait of Hormuz without taking action, and conduct naval exercises to stoke up tension.
“The statements and maneuvers could still raise energy market tensions and contribute to higher oil prices, though only to the degree that oil market participants take such threats seriously,” the report notes.
By Tsvetana Paraskova for Oilprice.com
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