Tension around Strait of Hormuz may hit hard oil, gas, maritime trade

Baku, Azerbaijan, July 24

By Leman Zeynalova – Trend:

Tension around the Strait of Hormuz may hit hard oil and gas prices, as well as maritime trade, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and SVP MEA-Risk, told Trend.

The Strait of Hormuz is once again the biggest waterway in the news headlines, after Iran seized a British oil tanker in what is widely regarded as the world’s most strategically important passage for international trade. Twenty percent of the global oil supply flows through the Strait, which links the Persian Gulf with the Gulf of Oman and the Arabian Sea.

“The current situation is a very instable one. While a direct military confrontation is still not very likely, there are enough parties involved that have their own plans and strategies. While looking at the overall military situation, US-UK and others are at present not yet preparing for a surgical strike or possible full-scale military operation. Simply said, not enough hardware and personnel available in the area to make a real dent. A possible surgical strike could be an option, but this would mean they would really need to cripple Iran’s military and IRGC, which doesn’t seem to be feasible at present. The Iranian reaction would be a disaster for Saudi Arabia, Bahrain and UAE for sure,” said the expert.

The expert pointed out that where a focus also should be put is the fact that there is a real threat of proxies taking the lead, confronting or forcing the Western, Indian and maybe even Chinese to react.

“Looking at the current strategy of the IRGC, the unofficial armed forces, which are led by more extreme conservative forces, warmongers are in place, looking for an excuse to hit on the US/UK or the Arab countries, trying to get into a war at present. The latter is already a power struggle within the Iranian government,” Widdershoven added.

He pointed out that actions taken by Iran against vessels in international waters are illegal, as the Strait is considered to be international waters, with free navigation.

“It does seem to be likely that new actions by the IRGC will be met by force. Tehran is playing it smartly, as the IRGC is not the official army, so the government can deny involvement. Proxies, such as Hezbollah, Hashd al Shaab or Houthis could also be a decisive role in the road to a real war. US-UK, West and China will have to take into account that a war with Iran will involve them, bringing threats to Iraq, Syria, Lebanon, Saudi, and Israel,” noted the expert.

He went on to add that up till now the market has been reacting contra-indicative.

“Normally any disturbance in the Strait of Hormuz or with Iran, would have pushed oil prices skyhigh. This has not been the case yet. Most probably traders/hedgefunds etc are still believing that there is too much oil on the market to have a real risk in place. The latter however could be wishfull thinking, as storage volumes are going down, demand for oil is still growing, and supplies are under pressure. If a total of 30 percent of crude is being blocked by a crisis, the prices will react and hit easily $100-$125 per barrels. The main pain will be felt in Asia, as most crude from the region is going to China, India, Japan. At the same time, a closure or crisis will also hit hard the gas prices, as Qatar is a major LNG exporter to Asia,” the expert said.

He recalled that since the oil crisis of 1973-9174 the OECD countries have set up a vast oil and gas storage, to cope with 6-9 months of total demand in case of emergency.

“Asian countries are building this up also at present. You also see a major buildup of oil and gas at present in Asia, especially China. Mitigation of a real crisis will be hard to do, as Gulf based oil production is one of the most wanted crudes. At the same time don’t forget, it is not only oil and gas that is being threatened. The crisis will also put pressure or even block parts of the global maritime trade between China/Japan and EU, including containerships, cars, consumer products etc.,” the expert concluded.

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Follow the author on Twitter: @Lyaman_Zeyn

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