Iran has threatened to shut the Strait of Hormuz to oil tanker traffic if its oil exports are also covered by a set of sanctions the West imposes on the Islamic Republic, lifting the crude oil price over $101 a barrel on Tuesday but the upward pressure was somewhat eased when a high ranking Saudi official calmed markets when he said the other Gulf states are ready to offset Iranian oil loss in the global market.
"Closing the Strait of Hormuz for Iran's armed forces is really easy ... or as Iranians say it will be easier than drinking a glass of water," Iran's navy chief Habibollah Sayyari told Iran's English language Press TV on Wednesday, sending more shockwaves through the market. "But right now, we don't need to shut it as we have the Sea of Oman under control and we can control the transit," said Sayyari, who is leading 10 days of exercises in the Strait. The Saudi oil ministry official told the Associated Press, however, that OPEC kingpin Saudi Arabia and other Gulf producers were ready to step in if necessary. He did not say what other routes the Gulf nations could take to ship the oil if the strait was closed off. The official spoke late Tuesday on condition of anonymity because he was not authorized to discuss the issue.
They slipped back on Wednesday in thin trade and as the market dismissed it as rhetoric. “The threat by Iran to close the Strait of Hormuz supported the oil market yesterday, but the effect is fading today as it will probably be empty threats as they cannot stop the flow for a longer period due to the amount of US hardware in the area,” said Thorbjoern bak Jensen, an oil analyst with Global Risk Management.
The Strait of Hormuz is “the world’s most important oil chokepoint”, according to the US Department of Energy. The State Department said there was an “element of bluster” in the threat, but underscored that the United States, whose warships patrol in the area, would support the free flow of oil. It was not immediately clear what Sayyari meant by controlling the Sea of Oman, but the Iranian navy has been developing its presence in international waters since 2010 for counter-piracy operations and also to show off its naval power. Iran’s international isolation over its defiant nuclear stance is hurting the country’s oil-dependent economy, but Iranian officials have shown no sign of willingness to compromise. Iran dismisses the impact of these penalties, saying trade and other measures imposed since the 1979 Islamic revolution toppled the US-backed shah have made the country stronger. During a public speech in Iran’s western province of Ilam on Wednesday, President Mahmoud Ahmadinejad implied Tehran had no intention of changing course. “We will not yield to pressure to abandon our rights ... The Iranian nation will not withdraw from its right (to nuclear technology) even one iota because of the pressures,” said Ahmadinejad, whose firm nuclear stance has stoked many ordinary Iranians’ sense of national dignity.
Some Iranian oil officials have admitted that foreign sanctions were hurting the key energy sector . Though four rounds of the UN sanctions do not forbid the purchase of Iranian oil, many international oil firms and trading companies have stopped trading with Iran. So far, big trade partners of Tehran - Russia and China -have blocked a ban on Iran’s oil exports at the United Nations. Iran’s arch-foes Israel and the United States have not ruled out military action if diplomacy and sanctions fail to rein in Iran’s nuclear work. The presence of US naval forces in the Gulf to secure a free passage for oil has increased concerns over a possible military conflict if Iran tries to block the waterway. Analysts say Tehran could retaliate against any military strike by launching hit-and-run attacks in the Gulf and by closing the Strait of Hormuz. About 40 percent of all traded oil leaves the Gulf region through the strategic waterway. An Iranian analyst who declined to be named said the leadership could not reach a compromise with the West over its nuclear activities as it “would harm its prestige among its core supporters”. “Iranian officials are showing their teeth to prevent a military strike,” said the analyst. “Closing off the Strait of Hormuz will harm Iran’s economy that will be very dangerous for the establishment ahead of the parliamentary vote.”