Lesson Learned From Iran War: Reduce Reliance on Strait of Hormuz

Lesson Learned From Iran War: Reduce Reliance on Strait of Hormuz

When Iran shut down the Strait of Hormuz during its war with the United States and Israel, countries and companies responded in ways that stopped the price of oil from reaching stratospheric levels and shielded most economies from major shocks.

More oil was pumped through pipelines, and nations around the world released their oil reserves, mitigating a global shortage. Countries in Asia, which were hardest hit by the war, took steps to consume less fossil fuel and increase their use of green energy sources. In recent weeks, the U.S. military helped tankers pass through the waterway.

Some experts now believe those measures can be built upon to make the world much less vulnerable to any effort by Iran to close the strait in the future.

“The Strait of Hormuz is no longer going to remain as critical a choke point as it was before this war,” said Vidya Mani, an associate professor at the University of Virginia and an expert on supply chains.

Iran gained an early advantage in the war by attacking commercial ships. This deterred shipping companies from passing through the strait, cutting off a large share of the world’s oil.

But the blow was not as big as it might have been. The price of oil, which closed at $73.74 a barrel on Wednesday, soared but never reached the levels that could have led to a global recession.

“There is a greater resiliency in this supply chain and the flow of energy than many thought,” said Kevin Donegan, a retired vice admiral and former top Navy commander in the Middle East.

A global shortage of crude oil was mitigated partly because many countries had large reserves that were released when the traffic through the strait stopped. China’s oil inventories, for instance, were enormous. And now Persian Gulf nations expect other countries to increase their stockpiles in the coming years.

“We are thinking seriously of ⁠having larger storage facilities all over the world,” Yasir O. Al-Rumayyan, chairman of Saudi Arabia’s state oil giant, Saudi Aramco, said last week.

The biggest wartime response was transporting much more oil through pipelines, instead of sending it through the strait on tankers.

As many as five million extra barrels of oil a day were pumped through a pipeline that crosses Saudi Arabia, equivalent to a third of the 15 million barrels transported daily through the strait before the war. The United Arab Emirates has plans to expand another pipeline, and other countries are expected to build their own.

If the pipelines operate close to their current capacity, shipping through the strait does not have to return to its prewar levels, said Arjun Murti, a partner at Veriten, an energy research and investment firm in Houston.

“I don’t think the Strait of Hormuz is going to turn into something that’s unimportant,” he said. “But, probably, the notion of it being existential is going to get reduced.”

And some oil did get through the strait during the war. Iran transported its own at close to prewar levels until the United States set up a blockade against its ships in mid-April.

And from early May, the U.S. military helped tankers sail through the waterway, even as Iran said it was in control of ship traffic. More than 500 ships and 250 million barrels of crude have been moved under that effort, according to Capt. Tim Hawkins, a spokesman for Central Command, the part of the U.S. military behind the operation.

Still some are skeptical that the world can significantly reduce its dependence on the strait. While the war did not cause a global recession, oil inventories fell to dangerously low levels, threatening shortages and even higher oil prices. The time bought by pipelines and other measures was running out.

President Trump said he had decided to seek peace with Iran because he feared a hit to the economy.

“I didn’t want to see economic catastrophe,” he said last week. “If you kept this going, that could have happened.”

Some say it will be hard to quickly expand the measures used during the war. Even though the oil pipelines helped, it could take several years to expand their capacity, and Iran could always target them in any future conflict, said Mona Yacoubian, director of the Middle East program at the Center for Strategic and International Studies.

“There is a little bit of wishful thinking on this,” she said. “People, countries will adapt, and the importance of the strait will diminish, maybe a little, but not fully.”

The Gulf is also a huge producer of natural gas, and there are no major pipelines to export it to world markets. For the foreseeable future, gas will have to be transported on huge vessels out of the strait.

Despite the alternatives, the war in some ways has allowed Iran to increase its influence over the waterway, according to Neil Crosby, head of oil research at Sparta, an energy market analysis firm. He points to Iran’s efforts to collect revenue from ships passing through the strait. In the memorandum of understanding signed last week by Iran and the United States, Iran said vessels could pass at no charge for 60 days. But the country has taken steps that suggest it will try to charge vessels after that.

“We’re leaving Iran with more power over the strait than prewar,” Mr. Crosby said.

One way to counter Iran’s ability to threaten shipping in the waterway would be to make a long-term commitment to maintain the U.S. military effort that helped vessels pass during the war. But this might require significant military resources.

Asked whether Central Command would keep up the operation, Captain Hawkins said the effort was keeping maritime traffic flowing. “We remain present and vigilant to help ensure the flow continues,” he added.

But some analysts say there’s a chance that a peace buttressed by economic ties, not rivalry, could keep the strait from being a persistent problem. The memorandum of understanding seeks to raise $300 billion for the reconstruction and economic development of Iran, in theory providing an incentive for the country to cooperate with other Gulf states.

“Building out economic interdependence with Iran will be a core element of any strategy that seeks to manage the threat posed by the Islamic republic over time,” Ms. Yacoubian said.

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