Iran to Disrupt Hormuz Oil Flow If Attacked by U.S.

Tony Capaccio, Bloomberg:

Iran may be planning to share the pain of any U.S. attack with the world's oil markets. A strike against Iran's nuclear program would probably be met with an effort to choke off oil shipments through the Strait of Hormuz, military planners and Middle East analysts say. The goal would be to trigger a market disruption that would force President George W. Bush to back off.

The Iranians hope the mere threat of such action may lead oil-consuming nations to pressure the U.S. to resolve the dispute short of a military confrontation. About 17 million barrels of oil, representing one-fifth of the world's consumption, is shipped through the strait every day. READ MORE

Roiling the markets would be part of a broader retaliation that would include terrorist attacks against U.S. forces or other interests in Iraq and worldwide, said Michael Eisenstadt, an Iran expert at the Washington Institute for Near East Policy and a former Central Command analyst.

``They will not allow us to limit the conflict to `tit for tat' -- us hitting their nuclear facilities, and they restricted to hitting deployed American military,'' Eisenstadt said in an interview.

General John Abizaid, the top U.S. commander in the Middle East, said in a written statement to the House Armed Services Committee on March 15 that Iran is expanding naval bases along its shoreline and now has ``large quantities'' of small, fast- attack ships, many armed with torpedoes and Chinese-made high- speed missiles capable of firing from 10,000 yards.

``Iran's capabilities are focusing on disrupting oil traffic through the straits,'' Army Colonel Mark Tillman, a professor at the National Defense University in Washington and former Central Command planner, said in an interview. ``Why else would they have these things?''

Relying on Diplomacy

The Bush administration has said it will rely on diplomacy to persuade Iran to halt its nuclear program, which Iran says is designed to produce electricity but the U.S. suspects is aimed at producing a bomb.

John Bolton, U.S. ambassador to the United Nations, told Congress on May 2 that those diplomatic efforts so far have been frustrated by Iran's clout as the world's fourth-largest oil supplier.

``The Iranians have been very effective at deploying their oil and natural-gas resources to apply leverage against countries to protect themselves from precisely this kind of pressure, in the case of countries with large and growing energy demands like India, China and Japan,'' Bolton said.

Iran's top nuclear negotiator, Ali Larijani, has said his nation won't rule out cutting oil exports in response to pressure over the nuclear dispute.

Rising Prices

Escalation of the dispute has helped to boost oil prices by 17 percent over the past two months. The current price of about $70 reflects potential disruptions over the next six to 18 months, said Jamal Qureshi, lead oil industry analyst for PFC Energy, a risk-analysis firm in Washington.

Even with that, a military conflict would shock the system so ``you'd very likely get a quick spike that could very easily go to $100 a barrel,'' until the U.S. releases oil from its strategic reserve, Qureshi said in an interview. ``It could get messy real quick.''

While Iran probably couldn't close the Strait of Hormuz -- which lies between Iran and Oman and is 34 miles at its narrowest point -- it could cause havoc by threatening or attacking individual oil tankers or terminals, analysts said. Oil from Iran, Iraq, Qatar, Bahrain, the United Arab Emirates, Kuwait and Saudi Arabia is shipped through the Strait.

Iran's Revolutionary Guard-controlled navy ``has been developed primarily to `internationalize' a conflict by choking off oil exports through the Strait,'' Abizaid, head of the U.S. Central Command, told lawmakers.

`Pressure the U.S.'

Kenneth Katzman, a terrorism and Middle East analyst for the nonpartisan Congressional Research Service, said that even if Iran can't block the strait, it ``can create a sense of crisis to drive up the price of oil, and presumably'' the nations that consume all that oil ``would pressure the U.S. to stand down or shrink from confrontation or end it quickly,''

Iran supplies China with 4 percent of its oil; France, 7 percent; Korea, 9 percent; Japan, 10 percent; Italy, 11 percent; Belgium, 14 percent; Turkey, 22 percent; and Greece, 24 percent, according to Clifford Kupchan, a director of the Eurasia Group in Washington, a global risk-consulting group.

These figures ``tell me that Iran for the foreseeable future will have considerable `petro-influence' over prospective U.S. allies,'' Kupchan said in an interview.

Terrorist Attacks

Eisenstadt said disrupting world oil markets might not be Iran's ``preferred avenue of response'' if attacked. ``I think they are more likely to respond in Iraq by launching terrorist attacks,'' he said. ``Disrupting oil shipments is a far second or third, but this is something we have to prepare for.''

W. Patrick Lang, formerly the chief Middle East analyst at the Defense Intelligence Agency, said Iran ``could unleash the Shiites en masse in Iraq, and kicking that up would place us in a very different position there. You would have a lot of people out there in the streets with rifles.'' Shiite Muslims make up 89 percent of Iran's population, and are a majority in Iraq.

Rear Admiral Jeffrey Miller, deputy commander of U.S. naval forces in the Gulf, said, the U.S. has ``the capability to keep the straits open and clean them up if that should be required.''

``We understand the importance of keeping all the choke points'' open ``and commerce moving,'' Miller said in a telephone interview May 3 from Manama, Bahrain.

Missiles and Seals

The U.S. has about 45 vessels in the Persian Gulf and Red Sea region, including the USS Ronald Reagan, the Navy's newest aircraft carrier, and five escorts, including the USS Tucson, an attack submarine that can fire new tactical Tomahawk cruise missiles and launch Navy Seal commandos.

Lang said the U.S. military, in a conflict, ``would be all air and naval, with no ground operation.''

``Iran might surprise the U.S. by sinking a tanker in the gulf or something and then the U.S. Navy would beat the bejesus out of them, but they could cause a spike in oil prices for a month or two,'' Lang said in an interview.


To contact the reporter on this story: Tony Capaccio in Washington acapaccio@bloomberg.net