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Stratfor
Why Iran Is Threatening to Close the Strait of Hormuz

Geopolitical Intelligence Report
June 8, 2018

Special Report

 Highlights

 * Facing the imminent reinstatement of U.S. oil sanctions, Iran is threatening to close the Strait of Hormuz, which would shut down the region's oil trade.

 * Iran has made this threat before and has never followed through, since actually shutting down the strait would be a drastic and damaging move for the country.

 * The tough rhetoric is more than likely to be followed up by more mild retaliation attempts, such as the harassment of vessels in the Strait of Hormuz.

 What happened?

 Recently, Iran's government has been revisiting a familiar refrain: the threat to block the strategic Strait of Hormuz. In comments published July 3 on his official website, President Hassan Rouhani issued a vague threat against regional oil exports, saying, "the Americans have claimed they want to completely stop Iran's oil exports. They don't understand the meaning of this statement, because it has no meaning for Iranian oil not to be exported, while the region's oil is exported." On July 4 and 5, several Islamic Revolutionary Guard Corps (IRGC) officials expressed their willingness to follow through on the president's tacit threat. The IRGC's commander, Mohammad Ali Jafari, for example, said, "we are hopeful that this plan expressed by our president will be implemented if needed. We will make the enemy understand that either all can use the Strait of Hormuz or no one."

 The Big Picture

The United States is pursuing a tough line against Iran, which it views as responsible for exacerbating the Middle East's regional instability. Washington is hoping that sanctions will weaken Iran's economy so much that it will force a change in behavior and ultimately in leadership. Faced with this difficult position, Iran must find ways to strike back at the United States without further compromising its economy and international alliances.

  See Iran's Arc of Influence

Why are the United States and Iran threatening each other?

Beginning in November, the United States will reapply sanctions on Iranian oil exports that has previously been suspended through the Joint Comprehensive Plan of Action (JCPOA), commonly called the Iran nuclear deal. While U.S. policy since Washington withdrew from the deal in May is still not entirely clear, it seems increasingly likely that the United States will demand that its allies completely stop importing Iranian oil. (At the same time, the United States is also pressuring its Gulf Arab allies to produce more oil — not only to make up for the anticipated Iranian drawdown but also to combat shortfalls resulting from turmoil in big oil producing countries like Libya.)

If all U.S. allies stop importing Iranian oil, the country could ultimately see its oil exports drop to as low as 1 million barrels per day (bpd) from its current 2.28 million bpd, resulting in a big loss of revenue. That dire prospect, amplified by the need to hit back at Washington and save face in some way, is prompting Iran to dredge up its familiar threat to shut off the Strait of Hormuz to any trade. The mere threat of closing the strait increases market uncertainty, stokes oil prices and creates some leverage for Iran without requiring that it follow through.

Why does the Strait of Hormuz matter?

 The Strait of Hormuz, a narrow passage in the Persian Gulf between Omani and Iranian territory, facilitates the movement of some 30 to 35 percent of the world's maritime oil trade. Close to 17 million barrels of oil travel through the strait each day, and all Persian Gulf shipping must travel through it. This includes shipping from every port in Iraq, Kuwait, Bahrain and Qatar, most of the ports in the United Arab Emirates and some critical ports in Saudi Arabia. Consequently, threats to the Strait of Hormuz, whether realistic or not, drastically affect market certainty because all of the world's big oil or natural gas importers — including the United States — depend on the secure passage of shipping through the strait.

 Hasn't Iran made this threat before?

 The current threats are reminiscent of previous statements that Iranian leadership has made over the years, whenever Tehran feels Washington is challenging its economic sovereignty. In 2012, Iran threatened to block the strait in response to sanctions by the United States and the European Union against the country's nuclear program. Iran's navy chief said it would be "easy" to block the strait, while its vice president warned that not a "drop" of oil would pass through it if more sanctions were piled onto Iran. But even when those sanctions did materialize, Iran did not block the strait.

 One difference between then and now is the extent to which the White House responded to the Iranian threats. The former administration downplayed them while it sought to negotiate a complicated nuclear deal. But the current administration is pursuing a heavily focused anti-Iran policy in the Middle East while trying to build up its relationships with allies such as Israel and Saudi Arabia, who view Iran as their primary adversary.

Would Iran actually block shipping in the Strait of Hormuz?

Despite the rhetoric, actually blocking the Strait of Hormuz represents perhaps Iran's most extreme option. First and foremost, attempting to close the strait would result in a devastating war for Iran against the United States and the Gulf Cooperation Council, as the latter seeks to preserve the freedom of shipping and naval passage through the critical strait. Meanwhile Iran's own economy and naval activity also depend on the free passage of goods and vessels through the strait. Finally, cutting off the Strait of Hormuz would be counterproductive to Iran's current goal of trying to stave off further U.S. sanctions and keep the European Union and other allies such as China and India in its good graces. The move would be incredibly disruptive to global shipping and oil markets, spoiling the well with allies that Iran needs now more than ever.

 What is likely to happen next?

Unless something as extreme as an all-out regional military conflict breaking out occurs, Iran will not block the Strait of Hormuz, even once the suspended oil-related sanctions go back into effect in November. As the United States increases sanctions pressure, Iran will probably retaliate in other ways, such as by utilizing its cyberwar capabilities against U.S. allies in the region or by harassing vessels in the Persian Gulf. These will likely include U.S. or allied military vessels, tankers carrying Saudi or Emirati crude oil or Saudi or Emirati offshore production platforms.

 This type of harassment is common for the IRGC's navy, which maintained a strategy of deterrence in the Persian Gulf even after the implementation of the JCPOA. In 2017, it harassed Emirati ships and an offshore Saudi platform. In that same year came an incident between an IRGC vessel and a U.S. naval ship in which the U.S. vessel fired warning shots in an effort to prevent a collision. The IRGC put a stop to those behaviors in August 2017, when Iran began its charm campaign to placate the European Union and try to prevent the United States from leaving the JCPOA. But now that an aggressive White House has brought back sanctions and the European Union is unable to offer economic guarantees, the IRGC may well start up this type of activity again.



    

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