The strait of Hormuz: go around
Tehran has been threatening this week to close the strait of Hormuz if sanctions are levied against its central bank, preventing export of Iranian crude. I’m with Simon Henderson: the right response to Iran’s threats is rapid development of alternative routes. He long ago laid out the geography and suggested some options.
It is really rather extraordinary that nothing has been done about this in the several decades since the strait of Hormuz became a key choke point for world oil supplies and a major (and expensive) preoccupation of the U.S. Navy. America spends something like $100 billion per year on military capabilities to protect oil routes. Easily a quarter of that is attributable to the strait of Hormuz. A pipeline from the UAE through Oman that circumnavigates the strait, another through Iraq to Turkey and a couple to get Saudi oil out to the Red Sea are all that is needed to devalue Iran’s geographic trump card. Put one through Yemen and the transit fees will be enough to solve that country’s economic troubles for decades.
I find it puzzling that none of this ever gets done. I was in charge of our preparations for an oil supply disruption in the State Department in the mid 1980s. We spent a small fortune accumulating the Strategic Petroleum Reserve and considerable diplomatic coin getting a few allies to do likewise. We also got them to commit to coordinated, early drawdown, a policy that has been implemented several times successfully over the last couple of decades.
But somehow we have never managed to get oil suppliers to use some of their gigantic flow of cash to circumnavigate the strait of Hormuz. I have to wonder whether we’ve got a moral hazard here: we protect the sea lanes and guarantee that the strait remains open, so Saudi Arabia, the United Arab Emirates and others conclude there is no need to invest in the pipelines that would make the strait less critical. We are hard-strapped now and need to reduce many commitments. Some even propose that we withdraw entirely from the Gulf. That is a a flaky idea in my book, but it is perfectly reasonable to expect oil producers–and other consumers–to carry more of the burden of ensuring that Gulf oil continues to flow.
PS: Michael Rubin views the Iranian threat as a hollow because Tehran needs to import gasoline and American military superiority more than suffices to keep the strait open. But he neglects the economic damage that even ineffective military action in the strait (or anywhere in the Gulf) will cause worldwide. He also emphasizes Iraqi vulnerability, which would be significantly reduced if oil could be exported in larger volumes to Turkey.
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