As Americans are busy with July 4th celebrations, the temperature is heating up in the Persian Gulf a day after Iranian President Hassan Rouhani suggested Iran could stop all regional gulf oil exports in retaliation for the US seeking to collapse the nuclear deal, and in response to aggressive new US sanctions.
"The Americans have claimed they want to completely stop Iran's oil exports. They don't understand the meaning of this statement, because it has no meaning for Iranian oil not to be exported, while the region's oil is exported," the state-run website, president.ir, quoted Rouhani as saying. “The Americans say they want to reduce Iranian oil exports to zero... It shows they have not thought about its consequences,” Rouhani said.
After the provocative Iranian statements, widely understood as a threat to impose military blockade on the world's most crucial oil choke point, spokesman for the US military's Central Command, Captain Bill Urban, told the Associated Press on Wednesday that US sailors and its regional allies "stand ready to ensure the freedom of navigation and the free flow of commerce wherever international law allows".
Washington has issued an ultimatum to countries dealing with Iran: halt all imports of Iranian oil from Nov. 4 or face punitive US economic measures with no exemptions. Rouhani called these threats "crime and aggression" and an act of "self-harm" as the unwavering stance is “against U.S. national interests and the interests of other countries.” He said this while in Vienna attempting to rally European governments to stand against Trump's policies targeting Tehran.
Previous threats by Iranian officials to possibly take the drastic action of blocking the the Strait of Hormuz — though once easily shrugged off as empty talk — are now coming to a head as the elite Islamic Revolutionary Guard Corps (IRGC) has thrown its full weight behind Rouhani's words, to which the Pentagon responded, issuing its firm response promising to keep the waterway open through military action if need be.
Though Rouhani's initial words could be somewhat open to interpretation, IRGC commander Major-General Qassem Soleimani followed up on Wednesday in a published letter addressed to the Iranian president: "Your comments, carried by the media, that if the Islamic Republic’s oil isn’t exported there would be no guarantees for the whole region’s oil to be exported, is a very valuable comment,” Soleimani wrote, “I kiss your (Rouhani’s) hand for expressing such wise and timely comments, and I am at your service to implement any policy that serves the Islamic Republic,” he said.
As Quds force leader (the special forces IRGC unit engaged in of foreign operations), Soleimani is precisely the one who would oversee such an operation as blocking Gulf exports. The Straight of Hormuz at its narrowest is about 31 miles wide and approximately 20% of the world's seaborne oil passes through it, annd the IRGC has in the past threatened the passageway by conducting war games, such as during a period of heightened tensions with the West over the straight in 2011 and 2012.
To put things in perspective considering potential disruption, the last major crisis of global economic consequence took place nearly three decades ago:
The largest oil market disruption ever occurred in August 1990, when Iraq's invasion of Kuwait took 4.3 million barrels per day of oil off the market—about 6.5 percent of world supply. That stoppage caused world oil prices to double (from about $20 to $40 per barrel). But a blockade of Hormuz would cut off nearly four times as much oil as the Kuwait crisis did, disrupting a share of the oil market three times greater.
Meanwhile, Iran OPEC governor, Hossein Kazempour Ardebili, weighed in with dire warnings in statements carried by Iran's oil ministry news agency SHANA.
“Trump’s demand that Iranian oil should not be bought, and (his) pressures on European firms at a time when Nigeria and Libya are in crisis, when Venezuela’s oil exports have fallen due to U.S. sanctions, when Saudi’s domestic consumption has increased in summer, is nothing but self harm,” Ardebili said.
“It will increase the prices of oil in the global markets,” he said, and echoing Rouhani's theme of US "self-harm" he added, “At the end it is the American consumer who will pay the price for Mr. Trump’s policy.”
So far the EU is standing by Iran as a major longtime oil importer, but some European officials have acknowledged US sanctions will create an unpredictable environment, potentially making guarantees to Tehran impossible to fulfill.
Iran has reportedly taken measures to gear up for survival amidst the coming economic war, according to Bloomberg, offering to barter oil for goods. “We have informed our oil customers that we will only buy their commodities if they buy our crude,” stated the spokesman for Parliament’s energy commission.
This reportedly the result of OPEC’s third-largest producer being unable to bring dollars or euros in exchange for crude because of “banking problems,” which, according to the spokesman, means Iran is open to alternative means of payment, including medical equipment and agricultural products.
Concerning this week's heightened rhetoric over the Straight of Hormuz, should the IRGC attempt to block it, such a drastic retaliatory measure would most certainly spark war in the Persian Gulf.