Ominous Signs as Iran's Main Oil Export Terminal Mulls Move to Oman Sea

Published September 6th, 2018 - 10:27 GMT
Iran's Revolutionary Guards attack a naval vessel during an exercise in the Strait of Hormuz on February 25, 2015 (AFP)
Iran's Revolutionary Guards attack a naval vessel during an exercise in the Strait of Hormuz on February 25, 2015 (AFP)

By Eleanor Beevor

It’s difficult to overstate the significance of the Strait of Hormuz to the global oil industry. This narrow channel between Iran and the coast of the Gulf states is only 21 miles long, and it separates the Persian Gulf from the Gulf of Oman and the Arabian Sea.

It’s the Middle East’s gateway to the Indian Ocean, and so to international shipping routes. 30% of the world’s oil supplies pass through it as they are exported. And now, Iran’s President Hassan Rouhani has threatened to shut it down. 

Of course this isn’t the first time Iran has used its stronghold on the Strait of Hormuz as a threat. This row started in June, when US President Donald Trump declared that he would be putting wide ranging sanctions on Iranian oil to prevent other countries from buying it. Rouhani responded dismissively, saying that Iran could not be blackmailed over oil, given its ability to disrupt the shipping in the Strait. 

His response prompted an all-caps tweet from Trump, telling Rouhani that he must “NEVER EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER THE CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE”, and that Iran should “BE CAUTIOUS!”.

But it seems Trump’s warning is going unheeded. Yesterday, Rouhani announced that he planned to move Iran’s main oil export terminal out of the Strait of Hormuz, and into the Oman Sea. Clearly, this is a move designed to protect Iranian oil exports from a potential blockade on the Strait. 

 

 

It’s not entirely clear how committed Rouhani is to seeing this through. Rouhani stated that the move of the export terminal was already underway. He claimed that exports were already being moved from their current position at the Khark Island Terminal in the Strait of Hormuz, to Bandar-e-Jask in the Oman Sea.

Rouhani added that the move would be complete by the time his presidential term ends in 2021. However, this doesn’t necessarily mean an Iranian blockade is imminent. Rather, it is a sign that Rouhani wants to keep all his options open. Ali Alfoneh, an Iran analyst at the Arab States Gulf Institute in Washington, told Al Bawaba: 

President Rouhani is sending mixed messages to Washington prior to the United Nations General Assembly a few weeks from now: On the one hand, he declares his readiness to engage in direct negotiations with the Trump administration and, in a televised address, emphasized Foreign Minister Zarif's meeting with Secretary of State Tillerson on the sides of the United Nations General Assembly in 2017. 

On the other hand, he threatens with closure of the Strait of Hormuz and moving Iran's oil terminal to the Sea of Oman. The second signal is meant to provide him with leverage just in case there are negotiations between Tehran and Washington at the UN General Assembly a couple of weeks from now.”

But how would Iran go about “closing” a Strait if it came to that? Iran certainly has a deciding role in the Strait of Hormuz’s stability. But the Strait is an international channel that cannot be “closed” on the say-so of a single country.

 

 

Rather, “closing” the strait would involve establishing a strong and threatening enough military presence to deter ships from passing through. This wouldn’t be unprecedented. The so-called “Tanker War” during the 1980s Iran-Iraq War involved Iraqi forces attacking Iranian ships. This was in response to Iranian attacks on Iraqi ships early in the war. However, a large number of ships sailing under other flags were also attacked in a show of intimidation. 

A map of the Strait of Hormuz (AFP)

The Tanker War didn’t stop oil shipping in the Strait of Hormuz completely. But it did escalate the cost of that shipping dramatically. The price of marine insurance for vessels working in the area went up 400%, which in turn forced a rise in crude oil prices. If such an escalation were to happen in the Strait of Hormuz today, it is also unlikely that Iran would be able to stop shipping traffic completely. The hulls of oil tankers today are far stronger than they were in the 1980s, meaning they cannot easily be sunk by military strikes. 

Nevertheless, Iran is doing its best to look like a serious threat to global energy stability. Ahmad Majidyar, the director of the Iran Observed Project at the Middle East Institute told Al Bawaba:

Rouhani’s remarks are the latest messaging from Tehran to Washington and its allies that the Islamic Republic is serious about disrupting global oil supply through the Strait of Hormuz if it is prevented from selling its own oil. Iran's military drill last month in the Persian Gulf was also meant to convey the message that the Iranian naval forces have the ability and willingness to close the strategic strait if tension with Washington heightens up further.”

It would be a mistake to underestimate the situation that could blow up in the Strait of Hormuz if things do escalate. The geopolitical mood – driven by concerns about crude oil supply – is sufficiently skittish that Iran’s threats could have profound repercussions - certainly at the market level, if not an outright confrontation. 

Ultimately though, Iran’s hand will probably be stayed by the fact that any attempt to block the Strait would most almost certainly be militarily punished. Naysan Rafati, an Iran analyst at the International Crisis Group told Al Bawaba:

I think there's little doubt that were the Iranians to follow through, they'd meet with a robust and rapid international response, led by the U.S. and its regional allies.”

 

And there are plenty of regional American allies who would be quite prepared to hit back at Iran. Its old rival Saudi Arabia and allied Gulf states also depend on access to the Strait for their oil exports. Neither they nor America would allow Iran to take control of the Strait without a fight. And this isn’t a fight Iran is ready for.

Iran’s oil export terminal may still be moved, but for now it’s unlikely that there will be a stand-off in the Strait of Hormuz. It would be far too big a risk to Iran. That said, if Tehran finds itself on an economic cliff-edge after the oil sanctions set in, desperation may push them into a gamble. If so, this small sea channel could turn into a decisive geopolitical battleground. 


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