Dark clouds gather over Hormuz

Sabre-rattling took a turn for the worse on December 27 when Iran threatened to shut down the Strait of Hormuz, the narrow four-kilometre passage through which nearly a third of all sea-borne oil is shipped. In fact, the passage is so vital to world commerce that the US warships patrol the area on a routine basis to ensure hindrance-free passage of maritime vessels. The move came against the backdrop of hints by the Western community that Iran may find itself in a bit of a soup with an oil-embargo imposed by the European Union (EU). Revenues from oil exports have been the lifeblood of the Iranian economy, and a move to disrupt earnings from this vital sector is viewed as a threat to the Iranian national security. It is noteworthy to mention that the EU import approximately 450,000 barrels of Iranian oil per day that constitutes about 18 per cent of the Islamic Republic's annual exports. All the players have laid their cards down on the table. Though assessments are probably correct in going after the finance, the lack of which would inevitably force the Iranians to rethink their present nuclear-enrichment programme, the move nonetheless has the potential of pushing the country to a point of no return. With tensions already at breaking point as the Iranian navy concluded its much-publicised naval manoeuvres off the coast of Oman, it is too early to comment whether the push will come to a shove. Again, according to an article published in the Jerusalem Post on December 18, Israeli submarines armed with nuclear-tipped missiles apparently have been stationed off Iran -- a move that only reinforces the gravity of the situation. Such aggressive posturing by Iran comes in the light of the fact that the latent Saudi production capacity can easily offset any vacuum created by the absence of Iranian oil in the world markets. It is hardly surprising therefore to see the country taking such an aggressive stance. Iran is not as helpless as it seems to be, given the unique geographical make-up of the Strait of Hormuz, it could technically shut it down, albeit for a short period of time, utilising a fraction of the estimated 2,000 mines in its arsenal. Such a move could prove disastrous for world crude prices in short and medium terms. In fact, a study conducted in 2008 by a security analyst and published by a Harvard University journal concluded ""the experience of past mine-warfare campaigns suggests that it could take many weeks, even months, to restore the full flow of commerce, and more time still for the oil markets to be convinced that stability had returned." Past experience of oil-embargos imposed by the West had mixed results. While it may seem perfectly "moral" for today's consumers to impose sanctions on a nation considered to have gone "rogue", do we really wish to let the genie out of the bottle with a revisit of the 1970s when oil producing cartels such as Organisation of Petroleum Exporting Countries (OPEC) used oil as a political weapon to coerce others into submission?