In threatening to close the Strait of Hormuz, Iran is risking more than war. It just might make the vitally important oil shipping route irrelevant.
One hundred years ago this week, five Italian torpedo boats conducted a raid in the Straits of Dardanelles, a long, narrow body of water connecting the Aegean Sea to the Sea of Marmara -- then the world's most important shipping passage. It was the height of the Italo-Turkish War, a precursor to World War I, and the Young Turks in Constantinople responded by playing their trump card: They closed the strait to international shipping intermittently for a few weeks by deploying their warships. But instead of aiding the war effort -- the Turks eventually lost control of their Libyan provinces -- the closure had disastrous consequences for the Ottoman Empire.
At the time, the Russians sent 90 percent of their grain exports through the Turkish Straits out into the Mediterranean. Closure of the Dardanelles thus meant that millions of tons of grain were spoiled, bringing ruin to Russia's agricultural economy and reducing its export revenues for the year by 30 percent. The lesson for Tsar Nicholas II: never allow a foreign power to hold the key to your prosperity. From that point onward, Russia's foreign policy in the lead-up to World War I was laser-focused on one objective: accelerating the demise of the Ottoman Empire and inheriting control over Constantinople and the Straits.
Fast forward 100 years and free passage through another strategic strait, the Strait of Hormuz, is endangered. This time it is the disruption of the oil supply, not grain, that has great powers vexed, and it is Iran that's doing the threatening. Meanwhile, Saudi Arabia and its Sunni neighbors -- with China's help -- are assuming Russia's role in altering the world's geopolitics.
Today, Iran's economy is in shambles. Its oil exports have plummeted by nearly 50 percent since last year because of U.S. and European sanctions, while its annual inflation rate has surpassed 30 percent and its currency has declined by 50 percent against the dollar. And the more desperate the Iranians become, the more aggressively they threaten to block the Strait of Hormuz, through which 40 percent of the world's seaborne oil passes each day.
In late June, the commander of the Iranian army's ground forces, Brig. Gen. Ahmad Reza Pourdastan said that "if conditions arise in which the Iranian nation feels threatened, it will use all [its] means of pressure, including in the Strait of Hormuz" -- a sentiment that his superior, Maj. Gen. Seyed Hassan Firouzabadi, echoed a few days later. Iranian naval officials have confirmed that they have already installed sea-to-sea missiles on small, speedy patrol vessels with advanced maneuvering capabilities. Later this month, Iran's parliament is scheduled to vote on a bill to block passage through the Strait to oil tankers linked to countries applying new European Union (EU) sanctions -- a measure that would apply to 27 EU counties and the United States and violate the Law of the Sea Treaty, which permits passage through the Strait in both directions even though part of the navigation route falls within Iran's territorial waters.
So far, Iran's threats have invited yawns from the oil market, which seems to be more concerned about declining demand from stagnant economies than a drop in supply. (Oil prices have dropped nearly 20 percent since April.) And there are good reasons to think Iran is bluffing: At its narrowest, the Strait is about 25 miles wide -- a fact that even the most neurotic traders seem to have grasped. Blocking an area as wide as Singapore will require a vast and sustained naval effort that the Iranians cannot muster. To be sure, they could mine coastal waters and harass the occasional vessel, but closing the Strait for a meaningful length of time is a far-fetched scenario that would undoubtedly trigger a swift and decisive U.S. military response. Yet Tehran would have us think otherwise.
What the mullahs, their generals, and the 100 Iranian lawmakers who've expressed support for the bill to block the Strait should know is that, like the Ottomans a century ago, they are likely to be the prime casualties of any real or threatened disruption to maritime trade. The reason is simple: It's not about the heavy price the Iranians would pay if they went through with a military effort to close the Straits. In fact, they're paying the price already, as talk of closure has already made the Strait of Hormuz increasingly irrelevant.
In recent weeks, two pipelines that bypass the Strait have become operational. In the United Arab Emirates (UAE), the Abu Dhabi Crude Oil Pipeline can now pump as much as 1.5 million barrels per day from Habshan in Abu Dhabi some 230 miles south to Fujairah in the Gulf of Oman. This represents 60 percent of the UAE's oil exports already, and this capacity can be easily expanded to almost 2 million barrels per day. In addition to becoming the new outlet to the Arabian Sea, Fujairah will have storage space for 12 million barrels as well as three sub-sea pipelines and mooring buoys for deepwater tanker loading.
Saudi Arabia has also invested in infrastructure that enables it to bypass the Iranians. In June, it reopened the Iraq Pipeline through Saudi Arabia (IPSA), which was confiscated from Iraq in 2001 and travels from Iraq across Saudi Arabia to a Red Sea port north of Yanbu. This pipeline will be able to carry 1.65 million barrels per day.
Together, these two pipelines could eventually reduce oil traffic in the Strait by 25 percent. But this is only the beginning. At least two more projects connecting Saudi Arabia to Oman and Yemen are under consideration. Iraq also has an outlet, which is currently being expanded, to the port of Ceyhan in Turkey via the Kirkuk-Ceyhan pipeline. Should whatever regime replaces Syrian President Bashar al-Assad be interested, Iraq may also revive the Iraq-Syria pipeline as another means of shipping crude from southern fields to the Mediterranean.
These projects have the potential to remove millions of additional barrels from Hormuz's busy schedule. But it is not only Iran's neighbors who are behind the efforts to reduce the strategic importance of Hormuz on their export lifeline -- China's also involved. Like Tsarist Russia (though for the opposite reason), fuel-hungry China is fixated on keeping its economic lifelines open and under control. China is one of the top purchasers of Iranian oil, and though it has been less than cooperative in the international boycott over Tehran's nuclear program, its allegiance to Iran pales in comparison to its dependency on the other Gulf energy exporters -- Saudi Arabia, Iraq, Kuwait, and the UAE -- which in total supply 35 percent of China's crude imports, or three times the volume supplied by Iran. Securing the flow of oil from those countries is therefore a paramount objective for Beijing. It was a Chinese state-owned construction company that built the pipe to Fujairah, and there are also plans in the works to build an oil pipeline connecting Pakistan's Arabian Sea port of Gwadar to Xinjiang province in western China. If built, this pipeline will be able to collect oil from African ports and the alternative terminals mentioned above and pump it directly to China.
Much of Iran's current regional clout derives from its geographical location, but its antagonistic behavior is driving the country's neighbors and clients to seek ways to defuse this power and eliminate their dependence on the Strait of Hormuz. The effort to reduce Hormuz traffic presents the West with a new opportunity to augment its current Iran containment strategy while eliminating for good one of the biggest impediments to global energy security: a choke point that for decades has enabled rogue regional players to hold the world economy hostage. Using steel on the ground rather than aircraft carriers in the water, world powers can do to Iran what Russia did to the Ottomans. This time around, however, it won't require a world war.