Middle East policymakers in Washington these days should take some advice from that noted diplomat, Bob Dylan.
His adage “When you ain’t got nothing, you got nothing to lose” is getting tested with the Trump administration’s “maximum pressure” sanctions regime on Iran. The outcome of this particular experiment could well determine the direction of oil prices as the U.S. heads toward presidential elections next year.
As the recent attacks on oil tankers and a U.S. unmanned drone demonstrate, in military terms it would be relatively easy for Iran to cause disruptions in the Strait of Hormuz, a bottleneck through which about a third of the world’s seaborne oil passes.
The narrowest gap between Omani and Iranian territory in the Strait isn’t much wider than the Strait of Dover. One war-games simulation of a U.S.-Iranian-style conflict in 2002, the Millennium Challenge, resulted in the near-destruction of the “home side” U.S. fleet by an array of guerrilla tactics, such as flotillas of small boats and motorcycle couriers deployed by the “enemy” Iranian team.
Even with President Donald Trump’s latest sanctions on Iran’s leaders and their response Tuesday promising an end to diplomatic engagement, full-blown conflict or a blockade in the Strait is an unlikely outcome. But the relative simplicity of such disruption is a reminder that Tehran’s tenuous investment in the global political and economic order, rather than its military capacity, is the major factor preventing the situation from deteriorating further. That makes Washington’s attempts to erode Iran’s political and economic standing a high-risk game.
This dynamic is most obvious in trade. A key reason that Iran needs the Strait of Hormuz open is because its own crude and natural gas goes through the same passage as the barrels coming from Saudi Arabia, the United Arab Emirates, Kuwait, Qatar and Iraq.
That particular fail-safe is almost gone. Traditionally the U.S. has mostly imposed primary sanctions that only limit American companies from doing business with Iran. As a result, large volumes of Iranian crude tend to keep flowing to importers in Asia and the Middle East.
That’s changed over the past decade as Washington’s Office of Foreign Assets Control has become more aggressive in prosecuting foreign businesses for doing business with sanctioned parties.
When sanctions were first re-imposed by the U.S. last year, Washington initially issued a series of waivers that kept the crude flowing. Since these lapsed at the start of May, Asian importers have turned off the spigots altogether to avoid running afoul of the U.S. government:
The 225,000 barrels a day shipped during May was the lowest volume in Bloomberg-compiled figures dating back to 2015. The average pace of export shipments so far this year has come to about 993,000 barrels, comparable to the record-low figures for total exports recorded in the immediate wake of the 1979 Iranian revolution.