Strait of Black Gold - Hormuz

Image credits: Google Earth

The Strait of Hormuz is one of the most important global chokepoints and geopolitical flashpoints alongside the Suez Canal, Panama Canal, Strait of Malacca, and the GIUK gap. More than 20% of the world’s global oil trade and supply takes place from this strait. Any flash or conflict between the world's major players like the United States of America, the Kingdom of Saudi Arabia, and the Islamic Republic of Iran can lead to global instability in oil prices and availability. Even if one tanker is attacked, harassed, or ceased, that leads to an increase in oil prices all across as oil is a globally traded commodity.

Oil from Hormuz is mostly bound for Asian consumers, among which are the two giants - India and China. If going through a supply crunch of oil, these two giant economies lead to devastating effects on their economic conditions. The 'Strait of Black Gold' is the name that suits Hormuz as it’s not only the passage that is important but also the commodity, that is oil, that passes through the passage that makes this strait, the jugular of the global economy. Any problems in the supply of oil in big manufacturing markets of Asia will lead to global repercussion. In today’s piece, we examine the geopolitical importance of the Strait of Black Gold - Hormuz.

LOCATION AND GEOPOLITICS

The Strait of Hormuz is a 21 mile wide narrow passage that sees dozens of tankers pass through it each day. This Strait is situated between Oman and Iran. More than 20% of global oil passes through Hormuz, and when in June 2019, two tankers were attacked, it led to instability and price rise of oil across the globe. The oil that is sourced from the North Sea - Brent oil jumped up by $2 a barrel. This rise may seem ordinary, but it is definitely not a slight rise when calculated in millions of barrels. These uncertain rises do affect the economic process and stability.

The location of Hormuz is a flashpoint between the Western powers like the USA, the UK and the Eastern power Iran. This open wrestling was on display to the world during the Trump administration. To keep the critical global sea lanes of communications and trade open, the US Navy has always kept a presence in important global flashpoints and chokepoints. This security and guard provides stability and certainty across the spectrum. Iran blasted a dummy aircraft carrier to send Americans a message that even their mighty powerful Nimitz may not survive an Iranian hyena attack by thousands of suicide attack ships.

In recent years, this geopolitical power stabilising force-the US Navy has come under challenge from regional players like Iran, China and the Pirates. China has challenged the US in the South China Sea, and Iran has done this in the Strait of Hormuz. This challenge to the US Navy is Iran’s way of imposing geopolitical leverage after the US withdrawal from the Iran Nuclear Deal and other clashes between the two parties like that of eliminating Qasem Soliemani - Iran’s top commander. Sending a geopolitical power push message and showing strength to flex out with the US to regional players like the Saudis and UAE is also in Iran’s platter of geopolitical flexing. Blocking Hormuz is Choking the Saudis, Kuwaitis and Emiratis and equal to cutting their economic neck.

Image credits: Bloomberg

It won’t be wrong to say that Iran uses Hormuz as a bargaining point. It uses involvement in the Middle East nations like Iraq, Syria and Lebanon through Militant groups like Hezbollah. Hormuz is a more powerful bargaining point as it affects the global economic circle and market. Keeping this chokepoint open is in the interests of all. After the Trump administration, Iran has used Hormuz again as a bargaining point as it renegotiates the Iran Nuclear Deal with the Americans. The Biden Administration has also stepped the US naval activities down in the region and has been a bit hard on the Saudis, be it concerning human rights or the war in Yemen.

This stepping down has given the Iranians a clear message about the current regime’s willingness in case of the deal. Hormuz, apart from being a geopolitical bargaining point, is an area of muscle-flexing for the Iranians. Iranians take any American involvement in the region as interference in Iran’s sphere of influence. This is also a reason that Iranians want to show their strength and willingness to call the shots in this area. When the Trump administration was imposing maximum pressure, it culminated in the seizure of the Stena Impero (a British tanker) and many other tanker attacks. This shows how the Iranians use Hormuz as an Anti-Access/Denial and Bargaining point.

EFFECTS ON THE GLOBAL ECONOMY AND POLITICS

Each choke point has its own effects on the global economy. The Suez Canal choke by the container Ever Given left many markets waiting and delayed delivery times. Likewise, any conflict in the Hormuz will have its repercussions and costs on the global economy. Clashes between the regional and global powers or a self-imposed choke on Hormuz impose costs on the world powers, so they accept a certain agreement or demand is another way a geopolitical chokepoint can be used.

Iran has done this in the past and can do this in the future as well. Iran’s defence policy openly states that if Iran gets attacked by Israel or the Americans, it will block Hormuz and wreak havoc on global oil and gas supplies, which will not go well in the Asian markets that control the manufacturing. Such high costs for a conflict makes Iranians emboldened.

Iran can impose costs on the West if they support Israel in some conflict or if Iranians want a policy to be rejected. It can do so by using Hormuz as a bargain again. Iran has also said that any conflict can lead to Iran attacking or ceasing the ship containers of the US and the UK. On 27 December 2011, Iranian Vice-President Mohammad-Reza Rahimi threatened to cut off oil supply from the Strait of Hormuz should economic sanctions limit or cut off Iranian oil exports.

Around the same time in December 2011, Iran’s navy chief told state television that it would be “very easy” for the country’s forces to shut down the choke point, declaring that “Iran has comprehensive control over the strategic waterway.” Any choke or sealing of Hormuz will adversely affect Asia.

These Asian markets like India and China, along with ASEAN, are on which the West is dependent for manufacturing and many goods. Choke in Hormuz can lead to breaking, delays, and instability in the world’s manufacturing supply chains as the oil still is the dominant energy source. Most of the oil comes from this region where Hormuz is located to the threat and costs of conflict. Hence, avoiding one is in everyone's best interest. The way Iran uses Hormuz has led to diversification in the oil procurement markets too.

The Asians are looking more and more towards the high North Sea, and the Arctic route for oil and supply lines as Hormuz can be uncertain at times. Political leverage used by Iran from Hormuz affects American decision making sometimes. As the Shale and fracking, which made the Americans independent in many matters, are being taken back on by the Biden administration, Americans are again losing independence in foreign policy matters that they had in the region.

Image credits: Bloomberg (map as of July 22, 2019)

WAY FORWARD

The shift from fossils to renewables and the post-oil Middle East will almost finish Iran's capabilities to use Hormuz as a chokehold on global powers like the USA. The Tanker wars in the region affect the world and now need to be dealt with, which the Americans cannot do alone. Regional partners like Saudis and Emiratis have to be brought in.

Iran should also not be given free will to impose costs on multiple actors, and this can be done by setting a reciprocal cost on the Iranians. Economic and oil-based sanctions have been already used to impose costs on the Iranians. Still, more effective measures can be given a stricter deal if they don't comply with the Iran Nuclear Deal, which depends on how the Europeans and the Americans deal with it.

For the Middle Eastern powers, a potent weapon to inflict more costs on Iran and decrease dependence on Hormuz is to build more pipelines from the Arabian peninsula to the Omani coast and then into the Oil Tankers in the Arabian Sea to supply to the rest on the world. This Cuts Iran's power in Hormuz. This infrastructure play is in the hands of Arab nations and to keep them secure from missile attacks from hostiles like the Iranians and Houthis.

The soft act on the part of Europeans is mainly because of the threat of Iran becoming a Nuclear state and their lookout for diversifying the supply lines of natural gas from Russia to other countries like Iran. Iran being the new natural gas supplier for Europe is what keeps Europeans quiet on Iranian acts. This again gives Iran the advantage.

This advantage can be restricted if the Asian states are involved in using their market and oil buying power to threaten Iran with costs if it doesn't comply. That can only be done with an around spectrum multilateral approach.

--------

BY HARSH SURI CO-FOUNDER THE GEOSTRATA thegeostrata@gmail.com