The Strait of Hormuz scenarios

Last week's clashes between the Iranian police and money changers in the black market is sending a clear message that the economic sanctions have started to bite and their impact is seen across the economy. The said clashes were a direct result of the plunging Iranian rial that lost some 40 percent of its value against the dollar.
The deteriorating economic situation brings to fore the long time Iranian threats of closing the Straits of Hormuz if it finds itself cornered. The 21-nautical wide choke point between Iran and Oman where 35 percent of world oil trade passes continues to be a sensitive waterway representing the soft belly for the industry.
These threats, in effect date back to 1979 and since the Iranian revolution. To back these threats, Tehran worked hard on developing quick attack boats; make sure that the world understands it has missiles it can fire up to a 1,000-mile range, regardless of their accuracy as well as not excluding any military step like mining the Strait waters.
In most cases, such threats were mainly taken as saber rattling. Simply put such a step is likely going to hurt Iran probably more than it hurts others, not only its oil exports, but also its imports including food stuff.
However given the growing row over the Iranian nuclear program with the Western countries led to tightening of the economic screws that were translated into escalating sanctions. The row over inflation and deteriorating value of the national currency is one concrete example that started to drive some discussion back home in terms of policies adopted and the best way to face up to external pressures.
But on the other hand those affected by the threats to close the Straits of Hormuz have their own tasks to handle. On the economic side, Saudi Arabia and the United Arab Emirates have led the way in building alternative pipelines bypassing the Straits of Hormuz. When fully operational these pipelines can carry 6.5 million barrels per day, or an equivalent of 40 percent of total crude flows. In addition to this there are a number of floating storages near consumer markets and two million bpd of Saudi spare production capacity ready to be deployed whenever is needed.
An important factor is that even if the Strait were closed it would be a temporary arrangement, not a permanent one. For such a move is bound to invite Western military powers to resort to force to open the waterway that still impact Kuwait, Qatar, Oman and Iran itself. After all, some 17 million bpd and 2 trillion cubic feet of LNG, or 20 percent of world gas trade still passes through the Strait of Hormuz.
Added to that there is the growing impact of the economic sanctions on Iranian exports that led to a severe decline from 2.4 million bpd in early last year to mere 0.8 million bpd last August, the lowest figure following the lowest production level in 22 years.
A new factor getting into the argument is the declining dependence of the United States on the Strait. Last year only 16 percent of the oil it bought came via the waterway, down from 24.5 percent back in 1990. On the other hand, the decline on the American side is met by a growing dependence on the Strait of Hormuz from new emerging economic players like China and India whose dependency grew to 63 percent and 42 percent respectively of their total imports, while Japan remains at all time high of 82 percent, which makes the most vulnerable of all imports to any move that threatens the safe flow of oil through the Strait.
That puts the United States in the driving seat of protecting regional and world security, which it has been doing over the decades. The difference this time is the growing cost of this protection, which according to some calculation in some think tanks amounts to $ 15 for a barrel passing through the Straits.
That is why the Asian customers will likely be destined either to help foot the bill or engage more politically in finding some solutions for the stand-offs.
That overall picture means, in effect, driving Tehran to the wall - to wait for a complete stoppage of exports with dire economic consequences that have started to show or risk a military adventure that it is doomed to lose.
But any move to opt for a military confrontation does not involve the government of Mahmoud Ahmadinejad only, but the whole ruling establishment and the country at large. The president has his foes within the establishment and a decision to go for a military confrontation with a superpower backed by other Western countries is not his prerogative alone. And since elections are scheduled for next year, it seems logical to give the decision for the incoming president. But can the volatile situation be controlled all this time?