Monday, 14 October 2019 | 21:49
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Oil Prices Cool As Tensions In The Persian Gulf Heat Up

Monday, 22 July 2019 | 00:00

A dangerous escalation is unfolding in the Strait of Hormuz, with Iran and the United States exchanging fire and taking steps that could lead to a potential military clash. Mere hours after the seizure of an unidentified oil tanker and her 12 crew by Iran’s Republican Guard Corps (IRGC) Thursday, an Iranian drone was reportedly downed by a U.S. amphibious assault ship in the Strait just a few kilometers away. The ‘defensive action’ taken by the USS Boxer comes almost one month after Iran shot down a US drone over the Strait. The U.S. may have used a new direct energy weapon fired via ‘anti-drone buggy’ to disable the drone, a BBC embedded journalist reported from the U.S. naval vessel.

Potential for armed conflict between the two nations – which would immediately imperil the world’s most vital waterway for seaborne crude shipments – is now dangerously imminent. Curiously, for now, the oil markets don’t seem to mind.

Following President Donald J. Trump’s announcement of “destroying an Iranian drone” in the Gulf, crude prices climbed a meager $0.60. This was still not enough to save Brent oil futures from a monthly low, down 2.4% on the day. We can thank record U.S. shale output and slowing global oil demand for that.

Thursday’s tanker seizure incident around Larak Island (see map) is demonstrative of the IRGCs increasingly hostile actions in the waters around the Strait. Iran is also allegedly behind a string of mysterious attacks on Emirati and other internationally flagged tankers in the region over the past few months, which I wrote about previously.

These maritime incidents appear to be attempts by Tehran to show their capacity for disruptive action in retaliation to the ‘maximum pressure’ strategy exerted by the Trump White House.

This policy includes sanctions against Iran’s energy sector and financial institutions, as well as entities, which choose to purchase Iranian oil. As we wrote earlier this week, China continues to import some 200,000 barrels per day (bpd) of Iranian crude in defiance of these sanctions – a new point of contention between Washington and Beijing.

Iranian leadership, which has previously threatened to block the Strait of Hormuz in retaliation to oil sanctions, is risking a war with the U.S. in order to escape their economic dilemma and gain nationalist support at home. But as many dictators in the past, including Slobodan Milosevic and Saddam Hussein, they may not realize the worst-case outcomes of their actions.

In the case of direct military conflict with Iran, the U.S. and its allies would undoubtedly crush Iranian conventional armed forces and high-value regime targets in a matter of weeks, if not days. Nevertheless, this would not stop such a war from endangering American allies and interests in the region. It will also have far-reaching consequences for the already-slowing global economy as oil prices would rise.

Asymmetric warfare, regional Shia terrorist proxies, and IRGC-supported insurgent groups from Gaza to Lebanon, and from Syria to Iraq and Yemen would ensure prolonged and costly chaos in the region. If the mullah regime survives, and it is a big if, this would also foster a renewed desire in Iran to acquire a bomb.

Other great powers would undoubtedly join the fray as well. In a conflict scenario, Russia would most likely not go to war to support the Iranian regime, but instead may seek supply it with weapons, trainers, and advisors, as it does in Venezuela and Syria. It would get involved through lending covert military and economic support.

China – for now favoring non-intervention, but also struggling with the U.S. trade war – may seek avenues to join Russia in challenging the U.S. The Europeans will sit on the sides and complain.

If tensions in the Persian Gulf continue to rise at this rate, a disaster might be around the corner. But Tehran needs to remember: playing with fire is always a bad idea, especially when up against a global nuclear power.
Source: Forbes

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