Iran’s Undisputed Weapon: Power to Block the Strait of Hormuz

Although Iran’s ability to throw the global economy into chaos has long been recognized, there’s no ready alternative for moving oil out of the Strait of Hormuz.

In Iran's confrontation with the West over its nuclear program, the Islamic Republic has one undisputed weapon: The ability to block the most important oil transit choke point in the world.

Although military strategists and diplomatic experts have worried about Iran's capability to throw the global economy into chaos for more than three decades, there has been little progress in developing alternative petroleum routes to defuse the power of Iran's threat to block the Strait of Hormuz.

Tensions increased last week after Israeli Defense Minister Ehud Barak issued a blunt warning that time was running out for stopping Iran's nuclear program. Iran has claimed that its uranium enrichment facilities are for peaceful energy purposes, not for weaponry. After a visit by United Nations inspectors, and plans for a return visit later this month, Iran's state-run news agency termed the talks "positive and constructive." But Israel signaled that the U.N. diplomatic efforts and an oil embargo led by the United States and Europe were not progressing quickly enough to defuse Iran's nuclear threat. If Iran moved its nuclear facilities into underground Bunkers, Barak said, it could be "too late" to destroy them. Barak's comment raises the fear that Israel might mount a unilateral air strike.

Defense strategists believe such a move would trigger a retaliatory Iranian action to block the Strait of Hormuz.

An Artery at Risk

There are hundreds of choke points that constrain the flow of oil around the world, from the Strait of Malacca in the east to the Panama Canal in the west. But none matches the importance of the Strait of Hormuz. In 2011, an average 16 million barrels of oil per day, or 20 percent of the oil traded worldwide, moved by tanker through the 173-mile (280-kilometer) waterway between Iran and Oman that links the Persian Gulf to the Gulf of Oman and the seas beyond.

The strait's narrowest point is 31 miles (50 kilometers) wide, but navigation is even more constrained. Tankers must move on either an outbound or an inbound shipping lane, each of them 2 miles (3.2 kilometers) wide, separated by a buffer zone of the same width. In 2011, about 14 outbound crude oil tankers passed through the conduit daily, with about 77 percent of the cargo headed toward Asia and the Pacific.

A look at history underscores the economic risk that a Hormuz closure represents. The largest oil market disruption ever occurred in August 1990, when Iraq's invasion of Kuwait took 4.3 million barrels per day of oil off the market—about 6.5 percent of world supply. That stoppage caused world oil prices to double (from about $20 to $40 per barrel). But a blockade of Hormuz would cut off nearly four times as much oil as the Kuwait crisis did, disrupting a share of the oil market three times greater. And this unprecedented throttling of supply would come at a time when oil is more than $100 per barrel and the world economy is weak.

In testimony before the U.S. Senate last week, Richard Jones, the career U.S. diplomat who is now deputy executive director of the Paris-based International Energy Agency downplayed the disruption Iran could cause to oil markets. He said the Hormuz threat to some degree had "already been priced into the market," meaning it is one of the reasons that oil prices already have been so high. "The likelihood of a prolonged stoppage for Hormuz transits is seen as being fairly low," he said.

The Asymmetric Threat

The decade-long Iran-Iraq War in the 1980s marked Iran's last attempt to sabotage shipping through Hormuz. A U.S. guided missile frigate, the U.S.S. Samuel B. Roberts, nearly sank after hitting an Iranian mine in April 1988, prompting President Ronald Reagan to order a massive and decisive retaliatory attack. Although Iran's naval forces are still seen as outmatched by the U.S. Navy, the Islamic Republic has invested heavily since then in weaponry of "asymmetric warfare." As detailed in a 2008 report by the Washington Institute for Near East Studies, Iran's strategy is built on mobile coastal missile batteries, modern anti-ship missiles mounted on fast-attack craft, midget submarines, modern naval mines, and drone aerial vehicles, and the ability to conceal and deploy its artillery amid the numerous coves, inlets, and islands along its 1,500 miles (2,400 kilometers) of Gulf coastline.

Experts at the Washington, D.C.-based Center for Strategic and International Studies last month released an analysis of the threat to the Strait of Hormuz, including a scenario in which Israel executes a major air strike. The analysts envisioned Iran using its submarines to plant smart bombs in the strait and near the Gulf of Oman. They suggested that oil tankers might also be attacked by honing torpedoes. Such a confrontation, the CSIS analysts said, would likely trigger a limited naval and air war by the United States to open the strait. But it would cause shipping to halt for as much as a week, and the risk premiums and tanker costs for oil shipping would be doubled for two to three weeks more.

Choking oil flow through the Strait of Hormuz also would disable one of the global oil market's most important safety valves. Nearly all of the world's spare capacity to produce oil—about 3.5 million barrels per day—is in Saudi Arabia. The kingdom's implicit pledge to keep oil flowing has been seen as an important lever keeping oil markets in check during the Libyan crisis last year, and the Iraq War of the past decade. Saudi Arabia's ability to make up for any shortfalls in the world oil market would be cut off, since 75 percent of its oil is exported through the Persian Gulf.

Saudi Arabia also can export oil through the 745-mile (1,198-kilometer) east-west Petroline pipeline from Abqaiq to the Red Sea, which is seen as the chief alternative for oil flow in case of a Hormuz closure. But the Petroline has a capacity to handle only 5 million barrels per day of oil, less than a third of what now flows through the Strait of Hormuz.

A novel proposal for beefing up that capacity is to use chemicals known as drag reduction agents (DRAs) to allow the oil to flow more freely through the pipeline. Economist Dagobert Brito at the James A. Baker Institute for Public Policy at Rice University in Houston, who first proposed such action a decade ago, has estimated that DRAs, plus an upgrade including pumps, impellers, and turbines, could boost the capacity to transport oil by pipeline to the Red Sea to 11 million barrels per day. When he first conducted the analysis, based on the technology of 2000, Brito said he estimated the cost of such upgrades would total about $600 million. Although costs likely have increased since then, he said, there have also been improvements in drag reduction agents that could boost capacity improvement even further.

"You couldn't get enough oil out this way for the long term," said Brito in an interview. "But it would buy time. You wouldn't face as much pressure to act quickly."

But because the Petroline runs through Saudi Arabia, it would be up to the kingdom to weigh such an investment. And the benefits may not outweigh the costs, at least in the short term, since a closure of the Strait of Hormuz would ratchet up the price that Saudi Arabia could command for each barrel of oil it exports through the Red Sea.

The other major alternative to Hormuz is a $3.29 billion, 230-mile (370-kilometer) pipeline that has been under construction for years through the United Arab Emirates. The UAE's oil minister said last month that the nation has nearly completed building the conduit from Habshan near Abu Dhabi's onshore crude production complex to an offshore oil terminal in the emirate of Fujairah on the Gulf of Oman. But the Abu Dhabi Crude Oil Pipeline's capacity would be 1.5 million barrels per day, or less than one-tenth of the current flow through the Strait of Hormuz. And the project, which has faced repeated delays, will not be operational until May or June.

In fact, some analysts see May or June as a likely timeline for an Israeli attack on Iran, based in part on Barak's signal that his nation would not be able to devote resources to an annual U.S.-Israel military exercise this spring.

That would leave little time to forge any alternative oil routes out of the world's most important petroleum basin, despite three decades of concern over the vulnerability of the Strait of Hormuz. "I'm not a prophet or anything," said Brito, "but there's a danger. And we'd be much better off if we had more alternatives than we do at this point."

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.