While Iranian threats have brought maritime traffic through the Strait of Hormuz largely to a halt, experts doubt Iran will risk a long-term blockade of the shipping lane in retaliation for US-Israeli attacks.
“Around 70 percent of Iran’s non-oil trade passes through ports that depend on access via the Strait of Hormuz,” says gas and economic analyst Dalga Khatinoglu of Iran International, a London-based news outlet.
Blockading the strait long-term would hurt Iranย itself.
“It doesn’t feel rational for Iran to close the street of Hormuz, because they have the imports of the crucial goods like crucial food for example, but also the majority of their exports go to China and India, so that would turn against the country,” energy expert Sara Vakhshouri of SVB Energy International told Bloomberg TV.
Oil and gas prices have shot up since the US and Israel began attackingย Iran on Saturday. It’s estimated that the cost of one barrel of oil could rise to $100 (โฌ86.00) or more if maritime traffic through the Strait of Hormuz becomes too dangerous.
Major oil trade route
Some 20% of global crude oil consumed around the world is shipped via the sea passage, according to the US energy authority EIA. Over 80% of these deliveries go to Asia, above all China, India and Japan.
A closure of the Strait of Hormuz would not only choke off oil shipments but also aviation fuel and liquefied natural gas deliveries, according to Iran International. Some 30% of Europe’s aviation fuel and 20% of global LNG is transported through the passage.
Many countries โ including the US, EU member states, the UK, Japan and Canada โ have strategic reserves to get them through several weeks of temporary interruptions.
Iran depends on China
A blockade would not only interrupt oil and gas shipments from Gulf states to the West, but also Iranian exports destined for China and India, which would exacerbate Iran’s economic crisis.
Iran has been subjected to Western sanctions, including ones targeting its exports, since the Islamic Revolution of 1979. Further UN sanctions were imposed between 2006 and 2015 over Iran’s nuclear program.
Sanctions were relaxed between 2016 and 2018 amid Iranian participation in the nuclearโrelated Joint Comprehensive Plan of Action (JCPOA). Yet US President Donald Trump reinstated strict sanctions after pulling the US out of the JCPOA framework.
Western sanctions offer a backdoor for Iran to continue trading, as no penalties are imposed on those states that do not comply with the restrictions. This led to Iran to send over 80% of its exports to China, according to data and analytics platform Kpler. Today, China is the biggest buyer of Iranian, Venezuelan and Russian oil.
Western sanctions against all three have compelled them to sell their oil at a discounted rate. While China benefits from these savings, Iran has to contend with lower export revenues. After all, sanctions, which necessitateย shadow fleets, intermediaries and detours, are driving up transportation costs.
“At present, China is the indispensable lifeline for Iran’s oil exports as it purchases the bulk of sanctioned crude,” says Nikolay Kozhanov of Qatar University.
China diversifies its oil imports
That is why China’s economic development is more important for Iran than any new UN sanctions. Sanctions on Iran, Russia and Venezuela have also enabled China to diversify its oil imports.
China has distanced itself from suppliers closely linked to the US, such member states of the Gulf Cooperation Council (GCC), many of which are integrated into the US-led security and financial system.
Sanctions have weakened Iran regardless of its economic resilience, says Kozhanov. This is because they severely restrict access to new technologies, international financing and investments, explains the analyst. This reduces its oil production in the long-term.
“Iran is likely to remain present in global oil markets, but as a structurally weakened, high-discount supplier, progressively trading stable volumes for lower per-unit-revenue,” says Kozhanov. He addedย that “the slow-burning negative spiral of Iran’s oil sector mirrors the general and gradual decline of overall regime performance and stability.”
This article was translated from German.