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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

January 4, 2012 at 9:48 AM

Iran and oil: The year of living dangerously

A reader asks if Iran can block the Strait of Hormuz, the narrows between the Persian Gulf and the Gulf of Oman, though which approximately a third of the world’s seaborne oil passes? The answer is, yes.

Iran, which conducted naval exercises last week, has invested in small patrol boats armed with ship-to-ship missiles and perfected “swarming” techniques to fight an asymmetrical battle against superior forces of the U.S. Navy patrolling this strategic choke point. Iran warned America against sending another aircraft carrier to the region, a threat dismissed by the Fifth Fleet. Still, this ratchets up tensions already high because of Iran’s pursuit of nuclear weapons. Iranian saber-rattling has grown as the United States and European Union consider tougher sanctions against Tehran.

The EU is considering an embargo of Iranian oil. “The big winners here will be China and India, who do not fear rising Iranian influence and who will gladly soak up any additional oil exports they may have to offer. However, ending this small dependency upon Iranian oil imports in Europe does clear the way for military action without the need to ponder the immediate consequences on oil imports,” according to the blog The Oil Drum. Higher oil prices are already happening as a result of just the rhetoric, a drag on economic growth.

Now the questions: Is Iran crazy enough to try to block the straits, which would prompt an American military response? And how long will Israel sit by and allow Tehran to continue developing its nuclear capabilities if previous efforts, such as the computer virus that set back the program and assassination of Iranian scientists, fail? The answers won’t merely carry economic consequences, but, yes, Iran can close the strait and with that much of the West’s oil lifeline.

It’s going to be an “interesting” year.

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Comments | More in Energy, Oil prices

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