Lawmakers in Iran yesterday voted to close the Strait of Hormuz, a key global oil shipping route, as retaliation for US strikes on its nuclear facilities.
The vote comes hours after authorities in the country threatened that the US strikes late Saturday night, which destroyed its three nuclear sites, would have everlasting consequences, saying there were no signs of contamination at its nuclear sites following the attack.
Though the final decision to shut the oil choke points lies with top Iranian security officials, (Supreme National Security Council), according to reports, an attempt to shut the oil route risks triggering a fresh round of energy crisis and global recession.
The Strait of Hormuz is one of the world’s most critical choke points, through which a fifth of global oil and a third of the world’s liquefied natural gas supply flows.
So far, most experts had agreed that Iran would not go that far to close the strait but US actions seemed to have changed that.
Possible implications of Strait of Hormuz closure
Analysts posit that any attempt by Iran to close the strait to shipping traffic by potentially threatening vessels with mines or missiles risked causing an oil supply shock, pushing up inflation and sparking a global recession.
They also warned that it could also trigger a significant military response from the US and its allies.
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In a note to clients, Eurasia Group said: “The US has amassed a massive military presence in the Gulf and surrounding region, and a move by Iran against the strait would almost certainly trigger a significant military response.”
Ashley Kelty, an oil and gas analyst at Panmure Liberum, said another key question was how Iran’s neighbours in the Middle East would respond.
If Tehran tries to block shipments out of the Strait of Hormuz, it will also hurt the exports of Saudi Arabia, Kuwait, Bahrain, Qatar and the United Arab Emirates.
“Disrupting the Strait of Hormuz is the easiest way that Iran can respond. But the bigger question is: ‘How much support does the Iranian regime have across the Arab world?’
“If they mine the strait, that basically involves all of the Middle East, because there’s no way that the likes of the Qataris and Saudis are just going to sit back and watch as all their exports are shut in,” he said.
The price of oil settled slightly at around $77 per barrel on Friday after Trump vowed to give Iran two weeks to come to the negotiating table, prompting traders to assume there would be no immediate military action.
But analysts now expect the price to surge higher on Monday as the market’s risk barometer goes up, with the threat of $100 per barrel or more.
Bjarne Schieldrop, Chief Commodities analyst at SEB Research, said: “Above $80 now looks very plausible. The next step from there would be actually losing oil supply to the market, through a blockade of the Strait of Hormuz or attacks on oil infrastructure inside the Persian Gulf.
The US had joined the war on Iran on Saturday, bombing the country’s three nuclear sites in an operation President Donald Trump described as a spectacular military success.
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Dubbed “Operation Midnight Hammer”, the airstrikes targeted Iran’s three nuclear sites, including the primary and most secretive nuclear site – Fordow, Nataz and Esfahan.
The attack by the US followed days of careful deliberations by the Trump’s administration on the consequences of the US direct involvement in the conflict, which has now entered its 10th day.
Meanwhile, International Atomic Energy Agency, IAEA, yesterday, made a u-turn on its earlier claim that Iran had the capacity to produce nine nuclear war heads, saying that it had no such evidence.
Speaking after the attack, Trump said the objective was to destroy Iran’s nuclear enrichment capacity and stop a nuclear threat posed by the world’s number one sponsor of terrorism.
In a social media post after the attack, Trump said: “We have completed our successful attack on the three nuclear sites in Iran, including Fordow, Nataz and Esfahan.
“All planes are now outside of Iran’s space. A full payload of bombs was dropped on the primary site – Fordow. All planes are safely on their way home.”
He congratulated the US army for the successful operation, saying “There is not another military in the world that could have done this,” While declaring “Now is the time for peace.”