UNITED STATES, WASHINGTON (OBSERVATORY) — In recent weeks, the likelihood that Iran will try to close the Strait of Hormuz for tanker traffic has increased significantly, resulting in a powerful blow to the global oil market.
The leadership of the Iranian Navy and the Navy of the Guardians of the Islamic Revolution, realizing that they can never fight on equal terms with the United States in a conventional naval battle, are preparing for asymmetric steps, including closing the Strait of Hormuz, as well as air and missile attacks on American targets in region.
For this reason, the Iranian military stockpiled a large number of sea mines, torpedoes, modern cruise missiles, deployed conventional and mini-submarines in the strait area, as well as a flotilla of small high-speed boats.
The Pentagon believes that Iran can use all this in a complex way, not only to disrupt the naval movement in the Strait of Hormuz, but also to try to deprive American and Allied forces of access to the region. Iran’s naval forces in Washington call the “real threat” to international shipping in the Strait.
At the same time, there is consensus among US military planners that American and Allied forces will ultimately prevail over Iran if the latter tries to close the Strait of Hormuz. The most optimistic experts predict that US-led forces will be able to open the strait within a few days, while the least optimistic expect it to take up to three months to restore sea traffic to normal levels.
Meanwhile, hostilities could spread from the Strait of Hormuz to other areas of the Persian Gulf (and a regional war could break out without Iran closing the strait), in which case the infrastructure for oil and gas production and export would suffer significant damage.
In the event of an attack by America and its allies, or if Tehran believes that an attack is imminent, Iran could launch air and missile strikes against the US military and Washington’s regional allies, such as Saudi Arabia and the UAE, oilprice.com notes.
The effect of the closure of the Strait of Hormuz on world oil prices depends on the amount of oil daily available on the world market, as well as the duration of blocking. In this regard, we can assume two scenarios that are directly related to the Strait of Hormuz, and the third, which includes the Gulf War.
In an optimistic scenario, when the Strait of Hormuz is closed for commercial transportation for only a few days, the impact on global oil supplies will be relatively minimal, but nevertheless there will be a short-term surge above $ 100 per barrel due to initial uncertainty around its outcome, after which oil prices quickly fall to the pre-crisis level.
With the complete closure of the Strait of Hormuz, the flow of oil and oil products in the amount of 20.7 million barrels per day will be reduced to almost 4 million barrels per day, or the amount that can be delivered through spare pipelines through Saudi Arabia to export facilities of the Red Sea and through the Abu-oil pipeline Dhabi bypassing the Strait of Hormuz.
It should also not be forgotten that Saudi Arabia has sealed, albeit relatively small volumes of crude oil in its storage facilities around the world, including Rotterdam in Europe, Okinawa and China in Asia and the U.S. Gulf of Mexico.
According to a pessimistic scenario, the global oil emergency response system will be used to its maximum in the first two months of the crisis (provided that the Strait of Hormuz is completely closed within the first 45 days and tanker traffic resumes within the next 45 days), which will lead to historically high oil prices for a long period of time.
Based on an April 2018 study by the Riyadh-based Petroleum Studies and Research Center, in a world without reserve oil production capacity (which would actually happen if the Strait of Hormuz was closed), oil prices would rise above $ 325 per barrel in the midst of the Libyan crisis in June 2011
Finally, according to the pessimistic scenario, in which significant damage will be caused to the oil and export infrastructure of the Persian Gulf, as well as the three-month closure of the Strait of Hormuz, crude oil prices will skyrocket.
Moreover, they will not begin to recede until the global economy plunges into a deep recession. Even a single direct missile hit at the Abqaiq Saudi Aramco refinery could deprive the world market of 7 million barrels per day for a year or until the plant is rebuilt.
The consequences of these and other losses of production in the Persian Gulf can be somewhat mitigated by opening global strategic reserves, as well as 200 million barrels of oil that Saudi Arabia holds in reserves at home, unless, of course, Saudi export facilities remain intact.
This article is written and prepared by our foreign editors writing for OBSERVATORY NEWS from different countries around the world – material edited and published by OBSERVATORY staff in our newsroom.
OBSERVATORY NEWS — Breaking news source, real-time coverage of the world’s events, life, politics, business, finance, economy, markets, war and conflict zones.
Contact us: [email protected]
Stay connected with News Observatory and Observatory Newsroom, also with our online services and never lost the breaking news stories happening around the world.
We are NEWS OBSERVATORY — the only funding and support we get from people – we are categorically not funded by any political party, any government somewhere or from any grouping that supports certain interests – the only support that makes OBSERVATORY possible came from you.