What if Iran Retaliates and Shuts Down the Strait of Hormuz?

Some 18 million barrels of oil transit through every day. The economic impact would be catastrophic.

The effort on the part of the Trump administration to shut down Iran’s ability to export oil is predicated on the false notion that the rest of the world will fall in lockstep with U.S. policy. But has President Donald Trump really thought through what would happen to the economic health of the world if Iran retaliates, shutting the Strait of Hormuz, through which much of the world’s oil flows daily?

The Trump administration’s push to reduce Iran’s oil exports to zero has entered a new, critical phase, with the United States refusing to extend the waivers it granted six months ago to eight nations, including China, India, Turkey, Japan, and South Korea, to purchase Iranian oil. Moreover, the United States has refused to allow for a “wind-down” period where impacted nations would be able to gradually wean themselves away from Iranian sources of energy. This means that, effective May 1, any nation purchasing oil from Iran will be subjected to punitive U.S. sanctions.

How to Hide an Empire:... Immerwahr, Daniel Best Price: $15.69 Buy New $17.24 (as of 11:50 EST - Details) Iran has responded to the American decision not to extend oil waivers in typical fashion, with Rear Admiral Alireza Tangsiri, the commander of the Iranian Revolutionary Guard Command (IRGC) naval forces, warning on April 23 that “if Iran’s benefits in the Strait of Hormuz, which according to international rules is an international waterway, are denied, we will close it”.

This threat was clarified the next day, April 24, by Iran’s Foreign Minister, Javad Zarif, who declared “ships can go through the Strait of Hormuz,” noting that “if the U.S. wanted to continue to observe the rules of engagement, the rules of the game, the channels of communication, the prevailing protocols, then in spite of the fact that we consider U.S. presence in the Persian Gulf as inherently destabilizing, we’re not going to take any action.”

For now.

The Strait of Hormuz is one of the most critical sea lanes in the world today, transiting some 18.5 million barrels of crude and refined products per day, representing roughly 20 percent of all oil produced globally. There is universal consensus among energy analysts that any closure of the Strait of Hormuz would result in “catastrophic” consequences for the global economy.

ArmanJan/Wikimedia/public domain.

Less certain is whether Iran is serious about carrying out its threats. In July 2018, following the Trump administration’s decision to withdraw from the Iran nuclear deal (the Joint Comprehensive Program of Action, or JCPOA), Iranian President Hassan Rouhani threatened to close the Straits in retaliation for renewed U.S. economic sanctions. Calmer heads prevailed, and Iran ended up taking the diplomatic route, working with the other signatories of the JCPOA to find ways to bypass U.S. sanctions.

In the intervening time, Iran’s efforts at crafting a diplomatic solution have fizzled, with Europe unable (or unwilling) to implement a meaningful alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, a financial network based in Belgium that provides cross-border transfers for over 11,000 financial institutions in more than 200 countries and territories around the world. Because the SWIFT board includes executives from U.S. banks, federal law allows the U.S. government to sanction banks and regulators who operate in violation of U.S. law. As such, any financial transaction involving Iran or any other entity under U.S. sanction would provide a trigger for secondary sanctions to be applied to facilitating institutions and/or persons.

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