Why Closure of the Strait of Hormuz Could Ignite a War and a Global Depression

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Ever since December 27th, war clouds have been gathering over the Strait of Hormuz, the narrow body of water connecting the Persian Gulf with the Indian Ocean and the seas beyond.  On that day, Iranian Vice President Mohammad Reza Rahimi warned that Tehran would block the strait and create havoc in international oil markets if the West placed new economic sanctions on his country.

“If they impose sanctions on Iran’s oil exports,” Rahimi declared, “then even one drop of oil cannot flow from the Strait of Hormuz.”  Claiming that such a move would constitute an assault on America’s vital interests, President Obama reportedly informed Iran’s supreme leader Ayatollah Ali Khamenei that Washington would use force to keep the strait open.  To back up their threats, both sides have been bolstering their forces in the area and each has conducted a series of provocative military exercises.

All of a sudden, the Strait of Hormuz has become the most combustible spot on the planet, the most likely place to witness a major conflict between well-armed adversaries.  Why, of all locales, has it become so explosive?

Oil, of course, is a major part of the answer, but -- and this may surprise you -- only a part.

Petroleum remains the world’s most crucial source of energy, and about one-fifth of the planet’s oil supply travels by tanker through the strait.  “Hormuz is the world’s most important oil chokepoint due to its daily oil flow of almost 17 million barrels in 2011,” the U.S. Department of Energy noted as last year ended.  Because no other area is capable of replacing these 17 million barrels, any extended closure would produce a global shortage of oil, a price spike, and undoubtedly attendant economic panic and disorder.

No one knows just how high oil prices would go under such circumstances, but many energy analysts believe that the price of a barrel might immediately leap by $50 or more.  “You would get an international reaction that would not only be high, but irrationally high,” says Lawrence J. Goldstein, a director of the Energy Policy Research Foundation.  Even though military experts assume the U.S. will use its overwhelming might to clear the strait of Iranian mines and obstructions in a few days or weeks, the chaos to follow in the region might not end quickly, keeping oil prices elevated for a long time.  Indeed, some analysts fear that oil prices, already hovering around $100 per barrel, would quickly double to more than $200, erasing any prospect of economic recovery in the United States and Western Europe, and possibly plunging the planet into a renewed Great Recession. 

The Iranians are well aware of all this, and it is with such a nightmare scenario that they seek to deter Western leaders from further economic sanctions and other more covert acts when they threaten to close the strait.  To calm such fears, U.S. officials have been equally adamant in stressing their determination to keep the strait open.  In such circumstances of heightened tension, one misstep by either side might prove calamitous and turn mutual rhetorical belligerence into actual conflict.

Military Overlord of the Persian Gulf

In other words, oil, which makes the global economy hum, is the most obvious factor in the eruption of war talk, if not war.  Of at least equal significance are allied political factors, which may have their roots in the geopolitics of oil but have acquired a life of their own.