New Gulf War to mark New Year?

Donaldson Tan

Iran conducts a navy exercise in the Straits of Hormuz amidst rising tensions in the Middle East

Amidst festive cheers as the world transitions from 2011 to 2012, war is brewing in the Middle East. The Islamic Republic of Iran has warned that it would close the Straits of Hormuz if its crude oil exports were to be threatened by further Westen sanctions and it has initiated a naval exercise in the Straits.

Iranian crude oil is already banned in the United States. The European Union is considering a ban on Iranian oil import in response to a detailed report by the International Atomic Energy Agency (IAEA) on Tehran’s nuclear weapons program and it is expected to reach a decision by 30 January 2012. The Bahrain-based US Fifth Fleet said it will not tolerate any disruption of traffic in the Straits of Hormuz.

This is not the first time the Islamic Republic has threatened to close the Straits of Hormuz. The Islamic Republic had done so in 2008. The Straits of Hormuz has garnered so much attention because it is a strategic chokepoint. In 2011, 35% of all seaborne traded oil or 20% of the oil traded worldwide flowed through the Straits and the primary destinations for these oil are in Asia and Europe.

The threat should be taken seriously. Washington has expressed concern about Tehran’s missiles, which include the Shahab-3, the Ghadr-1 with an estimated 1,600 km range and a Shahab-3 variant known as Sajjil-2 with a range of up to 2,400 km. These missiles are capable of hitting US and Israel bases in the Middle East.

On top of that, Tehran’s conventional naval forces are large enough to present a formidable challenge to naval forces of its Gulf neighbours and the United States. The challenge is further boosted by Tehran’s asymmetric capabilities which include submarines, minelayers, advanced mines and fast-attack light-crafts equipped with surface-to-surface missiles, in face of its opponents’ more modern military hardware.

However, Tehran lacks strategic depth on 2 fronts. Firstly, Iran’s military efforts to compete with the US and its Gulf neighbors by developing capabilities for asymmetric warfare cannot be separated from Iran’s emphasis on missiles and weapons of mass destruction (WMD). Both compensate for the limits of its conventional forces and act as a substitute. But so far, the Islamic Republic has yet to acquire nuclear weapons and thus has no strategic deterence against nuclear weapon states such as the United States, United Kingdom and France.

Secondly, closing the Straits may be a self-defeating move. Tehran’s staggering economy is reliant on exporting oil as well as trading with its neighbours in the Gulf. It is believed petrodollars account for 60% of the Iranian Gross Domestic Product. There is no alternative oil transport options such as pipelines should Iran close the Straits.

Tehran has very limited access to gas pipelines and it cannot export liquidified natural gas (LNG) as American sanctions prohibit the transfer of LNG technology to Iran. As a result, oil revenue cannot be replaced with gas revenue. Should the European Union ban Iranian crude oil, it would spark a budgetary crisis in the Islamic Republic. Therefore, Tehran’s defensive response actually affirms that economic policy is its Achilles Heel.

Moreover, Tehran’s attempts to increase tax revenue to reduce reliance on oil revenue have backfired in recent times. When the Iranian government tried to introduce Goods & Service Tax (GST) in October 2008, it was met with opposition in the form of a strike at the Tehran Bazaar. President Ahmadinejad immediately postponed the proposed tax – a move that exposed his political vulnerability which was subsequently exploited by his opponents to impeach the then Interior Minister Ali Kordan.

Tehran’s precarious position certainly calls for closer examination. It reeks of desparation and further provocation may push Iran into a more hardline position. The European Union should consider an alternative response that would neutralise the ‘chokepoint’ threat. Instead of banning Iranian crude oil, perhaps it is time to build an oil pipeline that connects the Persian Gulf to the Gulf of Oman.

Photo courtesy of Ali Mohammad, EPA.