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Time of India
13 hours ago
- Business
- Time of India
Nightmare scenario: How Iran, hit by US & Israel strikes, may choke world's oil supply via Strait of Hormuz
Iran's strategic position along the Hormuz coastline provides various retaliatory possibilities against US strikes. (AI image) Will Iran choke the global oil supply by closing the Strait of Hormuz? Recent US military actions against Iran's nuclear sites have highlighted Tehran's potential to disrupt oil commerce, particularly via the strategically vital Strait of Hormuz. Experts consider a complete blockade of Hormuz lasting beyond several days highly unlikely. Such an action would severely restrict oil movement and could drive prices up by nearly 70%, according to JPMorgan & Co. analysts, triggering worldwide inflationary pressures and economic slowdown. Whilst Iran has repeatedly issued warnings about closing the Strait of Hormuz, through which 20% of global oil passes daily, it also has various measured options to target adversaries whilst safeguarding relationships with allies, particularly China, its primary oil customer. Iran might refrain from disrupting oil transportation, considering historical instances where such threats did not materialise. Tehran must consider several factors: potential counterstrikes on its energy facilities, possible Chinese disapproval of flow disruptions, and risks to its own oil shipments, which are vital for Chinese supply. Additionally, the ongoing conflict with Israel and the US might have reduced Iran's capability to target oil tankers and regional oil infrastructure effectively. Furthermore, Western nations would likely respond decisively to protect maritime passage through this crucial waterway if threatened. Using Strait of Hormuz for Retaliation Iran's strategic position along the Hormuz coastline provides various retaliatory possibilities against US strikes. These range from minor disruptions to maritime traffic to severe actions, including potential drone strikes, mine placement, or explosive attacks on tankers that could render the strait unusable for commercial vessels, according to a Bloomberg report. "If Iran were to decide to begin to take action in the Straits of Hormuz, there's a wide range of things that can look like," Daniel Sternoff, non-resident fellow at the Columbia University's Center on Global Energy Policy, said on the center's podcast before the US attack happened. "We can kind of draw a huge set of scenarios and unknowns which have all sorts of consequences." Also Read | 'Highest in two years': India increases oil imports from Russia, US amidst Iran-Israel war; why it's about strategic positioning, not panic Iran could readily escalate its interference with merchant vessels passing through the Strait of Hormuz. Previously, Iranian authorities have compelled ships to enter their waters and detained vessels, causing significant distress amongst crew members, the report said. The Combined Maritime Forces, a naval alliance based in Bahrain, has noted that Iranian small boats have been approaching commercial vessels regularly. The organisation cautions that current diplomatic tensions heighten the risks associated with these encounters. Should Iran adopt more aggressive tactics, merchant vessels might need to travel in groups under Western naval protection. Whilst this would significantly reduce shipping efficiency, oil supplies should remain stable, provided sufficient tanker capacity exists. Since June 13, GPS signal interference has significantly affected maritime operations, impacting approximately 1,000 vessels daily. The navigation difficulties caused by this disruption contributed to a collision involving oil tankers on Tuesday. Despite one tanker's owner dismissing any connection to regional tensions, the incident's occurrence shortly after Israel's military actions raised questions. The deployment of sea mines could substantially affect maritime traffic through the strait, though this strategy might prove counterproductive as it would also endanger Iranian vessels. Daily monitoring by Bloomberg shows 110-120 vessels exceeding 10,000 deadweight tons traversing Hormuz, with operations continuing normally through Friday. Houthi Way Iran might adopt similar strategies to those employed by Houthi forces who have conducted attacks on commercial vessels in the Red Sea amidst the Israel-Gaza conflict. The Houthi deployment of ballistic missiles, alongside sea and air drones against commercial vessels, has compelled shipping companies to navigate around Africa rather than traverse the Suez Canal. This has resulted in commercial vessel movement declining approximately 70% compared to 2022-2023 figures. Although the militants claimed to focus on vessels connected to the US, UK or Israel, these associations were often indirect, yet the attacks effectively discouraged maritime traffic across all categories. Vessels traversing the Strait of Hormuz lack alternative routes, creating a distinct risk assessment scenario. Nevertheless, should Iran target sufficient vessels, the impact on supply chains could prove substantial. Also Read | Iran-Israel war & US bombings: Should possible Strait of Hormuz closure worry India about its oil supply? Explained in 10 points Choking Oil Supply: Regional Impact Iran's capability to affect oil supply extends beyond the Strait of Hormuz. The Iraqi Basra oil installations are situated near the Iranian frontier. In 2019, Iran faced accusations from Saudi Arabia regarding an assault on Abqaiq's oil processing facilities, which disrupted approximately 7% of global oil production. Experts indicate that whilst retaliatory actions targeting oil infrastructure cannot be dismissed, such escalation would prove detrimental to all parties involved. Satellite observations show increased crude exports from Iran's principal export facility at Kharg Island, where storage has reached capacity. Should this facility become a target, Iran would suffer significant revenue losses, potentially prompting reciprocal strikes. Such circumstances would primarily benefit speculative oil traders and non-regional producers. Iran's improved diplomatic ties with neighbouring states could deteriorate if it pursues aggressive actions. Severe possibility: Complete Blockade of Strait of Hormuz The most severe possibility involves a sustained, complete closure of Hormuz. The region exports approximately 20 million barrels daily of crude oil and refined products, with no alternative maritime routes available. OPEC+ nations Saudi Arabia and UAE possess surplus capacity but face significant constraints in finding alternative routes to Hormuz for their oil exports. Also Read | Iran-Israel conflict: India keeping tab on Chabahar Port, International North-South Transport Corridor; why it's important Navin Kumar from Drewry maritime consultancy said according to Bloomberg: "We don't believe the Strait of Hormuz is going to close under any scenario. Maybe for a day or two, but it's unlikely there will be any closure for a week or more. It's highly unlikely." Iran's historical threats to disrupt transit have remained unfulfilled, and questions persist about their military capabilities to execute such actions. US Vice-President JD Vance cautioned that this would prove economically detrimental for Iran. Amrita Sen of Energy Aspects Ltd remarked: "You are looking at pretty much the biggest disruption to trade flows we've had in decades — prices would sky-rocket." Whilst oil prices would certainly rise, the length of any disruption would be crucial. Global consuming nations maintain substantial reserves, with approximately 5.8 billion barrels of crude and fuel in storage, according to Bloomberg's industry data, excluding non-OECD nations' refined fuel reserves. Annual petroleum flow through Hormuz amounts to 7.3 billion barrels, providing adequate protection even in extreme circumstances. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
Time of India
14 hours ago
- Business
- Time of India
How a cornered Iran could wreak havoc on global oil trade
US airstrikes on Iranian nuclear facilities are sharpening the focus on one option Iran has yet to really deploy in the conflict: disrupting regional oil trade, especially through the critical Strait of Hormuz . Iran has over the years threatened multiple times to shut the strait — a narrow stretch of water through which a fifth of the world's oil supply flows each day. But in practice, Tehran has numerous less-drastic options at its disposal to calibrate a response that hurts its enemies while limiting the impact on allies like China, its biggest oil buyer. Also Read: Two tankers turn back from Hormuz as US strikes on Iran raise fears of wider conflict A full closure of Hormuz for more than a few hours or days is a nightmare scenario that many observers think improbable. It would choke off flows and spike crude prices — JPMorgan & Co. analysts said by almost 70% — fueling global inflation and weighing heavily on growth. Up to Friday, oil shipping from the region, and indeed through Hormuz, had been relatively unscathed by the conflict. Shipments from Iran itself have surged, and oil tanker activity through the Strait of Hormuz remained largely steady. Still, Greece's shipping ministry on Sunday advised the nation's vessel owners to review the use of the strait. Live Events Bloomberg If it chooses to target oil in its retaliation against the US strikes, Iran's coastline onto Hormuz gives Tehran an array of options, from lower-impact harassing of ships in the region, to the more extreme alternatives: attacking tankers with drones, mines or bombs to the point that the strait becomes impassable for commercial trade. 'If Iran were to decide to begin to take action in the Straits of Hormuz, there's a wide range of things that can look like,' Daniel Sternoff, non-resident fellow at the Columbia University's Center on Global Energy Policy, said on the center's podcast before the US attack happened. 'We can kind of draw a huge set of scenarios and unknowns which have all sorts of consequences.' Iran may also ultimately avoid actions that impede oil flows — recent history is littered with examples where supply threats came to nothing. In whatever it does, Tehran will have to weigh the possibility of retaliation against its own energy infrastructure and the possibility that it could upset China if flows got disrupted. It will also have to consider the potential for retaliation against its own shipments, another important source of oil for China. There's also a chance that the conflict with Israel, and now the US, has degraded its ability to strike at oil tankers and wider regional oil infrastructure to the point where disruptive retaliation is difficult. Equally, western powers will aim to protect shipping through the waterway forcefully, if it's threatened. Step Up Harassment An easy step for Tehran would be to increase harassment of commercial shipping through Hormuz . In the past, Iran has ordered ships into its territorial waters and even held vessels, a prospect that terrifies crews. The approaching of commercial shipping by small Iranian craft has been going on for some time anyway, according to the Combined Maritime Forces, a naval coalition operating out of Bahrain, which warned that the current tensions made the practice more dangerous. Depending how aggressive Iran were to be, this could force ships to travel in convoys under the protection of western navies. It would be highly inefficient for the maritime industry but, provided the tanker fleet had enough ships, it shouldn't affect oil supply. More Jamming One of the main impacts on shipping from the conflict so far has been the widespread jamming of GPS signals, with nearly 1,000 vessels affected daily since June 13. The disruption makes it harder to navigate safely in certain conditions, and was likely a factor in an oil tanker crash on Tuesday. The owner of one of the two tankers said that the incident had no relation to the conflict but the timing — just days after Israel had begun attacking — was unusual. Mining Ships Sea mines would have the potential for a significant supply impact by deterring traffic through the strait, although the resulting risk to Iran's own ships may make the move less likely. Bloomberg is tracking every ship that goes through Hormuz every day above 10,000 deadweight tons. About 110 to 120 per day have been going out, with little obvious sign of disruption through Friday. Back in 2019, American officials released images they said showed that Iran was involved in a mine blast that forced the evacuation of a tanker near the entrance to the Gulf. Tehran denied involvement at the time, and the owner of the ship refuted the US assertion that the blast came from a mine. Houthi Playbook Iran could mirror the tactics of the Houthi militants who have been attacking merchant shipping in the Red Sea in response to Israel's war in Gaza. The Houthis' targeting of commercial ships with ballistic missiles, sea drones and air drones forced owners to take the longer route around Africa instead of cutting through the Suez Canal, and commercial traffic through the area remains down by about 70% from 2022-2023 levels. While the militants officially targeted ships with ties to the US, UK or Israel, the link was often tenuous, and the attacks had a chilling effect on ship traffic across the board. Ships passing through Hormuz don't have an alternative route available to them, so the risk calculation will inevitably be different. But the supply impact could be significant if Iran targeted enough ships to create a deterrent. Regional Targets Iran's options to disrupt oil are not purely limited to Hormuz. The Basra oil fields in Iraq, for example, are just a few miles from the Iranian border. Back in 2019, Saudi Arabia blamed Iran for an attack on oil processing assets at Abqaiq, knocking out about 7% of global crude supply. Analysts say that a tit-for-tat that directly makes oil production a target is in neither side's interests, even if it can't be ruled out. Iran has filled up its key export terminal of Kharg Island and is ramping up crude exports, according to satellite imagery. Were that facility to be targeted this time, Iran would lose a key source of revenue but then have little reason not to strike back in kind. The only real winners in that scenario would be bullish oil traders and producers from outside the region. Relations with neighbors have improved and would be jeopardized by Iran taking action. Full Closure The extreme scenario for Hormuz is a full and prolonged closure. There is no other sea route for the about 20 million barrels a day of crude and fuels that goes out of the region. While OPEC+ members Saudi Arabia and the United Arab Emirates have spare capacity they could theoretically ramp up, they have very limited alternatives to Hormuz for getting oil out to export markets. 'We don't believe the Strait of Hormuz is going to close under any scenario,' said Navin Kumar, a director at maritime research consultancy Drewry. 'Maybe for a day or two, but it's unlikely there will be any closure for a week or more. It's highly unlikely.' Despite threatening to cut transit several times in the past, Iran never followed through with the threat, and it's unclear whether it possesses the military capability to implement it. US Vice-President JD Vance warned on Sunday that such a move would be 'suicidal' for the Middle East country's economy. 'You are looking at pretty much the biggest disruption to trade flows we've had in decades — prices would sky-rocket,' said Amrita Sen, director of research at consultants Energy Aspects Ltd. Healthy Buffer Still, while oil prices would inevitably surge, the duration of any disruption would be key. The world's consuming nations have at least 5.8 billion barrels of crude and fuel stockpiled between them, according to industry data compiled by Bloomberg that don't cover refined fuels held in non-OECD nations. The entire flow of petroleum through Hormuz is roughly 7.3 billion barrels a year, meaning there's a healthy buffer even in a worst-case scenario.
Calgary Herald
a day ago
- Business
- Calgary Herald
How a cornered Iran could wreak havoc on global oil trade
Article content (Bloomberg) — US airstrikes on Iranian nuclear facilities are sharpening the focus on one option Iran has yet to really deploy in the conflict: disrupting regional oil trade, especially through the critical Strait of Hormuz. Article content Iran has over the years threatened multiple times to shut the strait — a narrow stretch of water through which a fifth of the world's oil supply flows each day. But in practice, Tehran has numerous less-drastic options at its disposal to calibrate a response that hurts its enemies while limiting the impact on allies like China, its biggest oil buyer. Article content Article content Article content Article content A full closure of Hormuz for more than a few hours or days is a nightmare scenario that many observers think improbable. It would choke off flows and spike crude prices — JPMorgan & Co. analysts said by almost 70% — fueling global inflation and weighing heavily on growth. Article content Up to Friday, oil shipping from the region, and indeed through Hormuz, had been relatively unscathed by the conflict. Shipments from Iran itself have surged, and oil tanker activity through the Strait of Hormuz remained largely steady. Still, Greece's shipping ministry on Sunday advised the nation's vessel owners to review the use of the strait. Article content If it chooses to target oil in its retaliation against the US strikes, Iran's coastline onto Hormuz gives Tehran an array of options, from lower-impact harassing of ships in the region, to the more extreme alternatives: attacking tankers with drones, mines or bombs to the point that the strait becomes impassable for commercial trade. Article content Article content 'If Iran were to decide to begin to take action in the Straits of Hormuz, there's a wide range of things that can look like,' Daniel Sternoff, non-resident fellow at the Columbia University's Center on Global Energy Policy, said on the center's podcast before the US attack happened. 'We can kind of draw a huge set of scenarios and unknowns which have all sorts of consequences.' Article content Still, Iran may ultimately avoid actions that impede oil flows — recent history is littered with examples where supply threats came to nothing. Article content In whatever it does, Tehran will have to weigh the possibility of retaliation against its own energy infrastructure and the possibility that it could upset China if flows got disrupted. It will also have to consider the potential for retaliation against its own shipments, another important source of oil for China.
