One possible upside for Iran from the recent flare-ups in the Strait of Hormuz is that crude oil prices jumped more than 1 percent on the news that the Iranian Revolutionary Guard Corps (IRGC) last week seized a British oil tanker, supposedly in retaliation for Britain’s Royal Marines seizing an Iranian ship near the Strait of Gibraltar at the beginning of July.
This led to some speculation that one of Tehran’s aims might be to put pressure on the West through destabilizing prices in the global oil markets. The US administration was quick to deny Iran would be able to pursue this tactic to much effect. And, on this occasion, they would be largely correct. The US does, at this moment in time, have effective energy independence and it also has significant surpluses with which it could support its allies.
If all-out war were to break out in the Gulf, global oil prices would still spike, but that spike would be of relatively limited scope — and certainly the US, and by extension much of the West, would be able to absorb it. This is not the 1970s or 80s, when any Gulf nation could send the economies of the West into a tailspin with a mere threat to the supply of Middle Eastern oil.
An alternative explanation is that, even if Tehran is not aiming quite as high as destabilizing Western economies, it would still very likely benefit from an increase in oil prices, however modest. The country’s budget gets an estimated 30 to 40 percent of its revenues from oil exports. In the context of America’s “maximum (economic) pressure” on Tehran, which the regime is currently feeling rather acutely, some reprieve from an oil revenue bump would be more than welcome.
Unfortunately, this is not likely a good explanation either. For such a tactic to be effective, Iran would need to be able to sustain a long-term, credible threat to oil shipping through the Arabian Gulf, the Strait of Hormuz and the Gulf of Oman. This is quite beyond its capacity at the moment. Iran can certainly harass the occasional ship, and individual shipping companies might feel an immediate impact, but, overall, a sustained assault on shipping in the area would prompt the West to deploy naval patrols in force. Iran may have the capacity to seize isolated ships, but it does not have the capacity to stare down a US naval deployment to the region. All this would achieve is to negate much of Iran’s leverage and risk escalating the situation even further.
And escalating the situation is not something anyone wants. Not the US, sure, but certainly not the regime in Tehran. The problem that the US has is that, despite its overwhelming destructive capacity, it is utterly incapable of deploying that capacity to bend the Middle East to its will; the ways in which it has won the wars and lost the peace in both Afghanistan and Iraq is definitive proof of the limits of American hard power. A direct military campaign against Iran would be an expensive mistake for Washington.
But, for the current regime in Tehran, ensnaring the US in another Middle East war would be worse than just a mistake — it would be suicide. The US may not be able to ever compel a country like Iran to bend to its will, but it can certainly bomb the regime to oblivion and hunt down and exterminate every last ayatollah or officer of the IRGC.
The Iranian government knows this. Iran, as a regional power, does have many strengths but the leadership in Tehran is well aware of the limits of that power. The Iranian regime would not have survived as long as it has, surrounded as it is by existential enemies, if the leadership did not have a clear view of the field.
This, as well as the recent drone incidents, would be best understood as limited skirmishing as both sides are gearing toward a rehashing of the Obama-era nuclear deal. Each side is trying to demonstrate capacity to gain extra leverage in that negotiation. This does risk scuppering the chances of a deal altogether if some kind of serious accident happens on either side. But, for now, that remains the direction of travel.
In that respect, global oil prices look quite safe from this particular threat — at least for the time being.