Iran, the US, and the Strait of Hormuz
Issues continue between the US and Iran, as Iran’s threats to close the Strait of Hormuz remain a prominent issue in the global market. Approximately one-fifth of the world’s traded oil passes through the Strait, and with such a drastic reduction in supply if Iran were to close it, transportation costs would increase as alternate routes are utilized. Such effects could be detrimental to the oil industry, imposing lasting effects on the global economy.

Defense Secretary Leon Panetta stated that “The US will be able to defeat any Iranian attempt to shut down sea-borne commerce”, sparking a stand-off between the two countries as the US increases their military presence, and threats for closure continue. The issue first arose when Western governments became increasingly involved in Iran’s nuclear program, and Iran retaliated with threats to close the strait if such involvement continued any further.

If the Strait were to be shut down, global oil prices would escalate, posing detrimental effects on the global economy as supply would decrease while demand remained constant. To avoid this issue, new pipelines are being opened to decrease dependence on the Strait. Iran currently utilizes the strait for its own oil, so would it be worth it for Iran to cut off its own supply to simply prove a point to the world?

Hearsay continues that Iran plans to close the strait if Western government involvement continues, a phenomenon that is expected to raise oil prices in the future. The question is, will Iran actually shut down the Strait of Hormuz, or are they simply using their resources to ensure that Western governments keep out of their nuclear program?

The effects could be destructive not only to the global economy, but could also stimulate further military tensions between Western nations and the Middle East.

Matthew Faulkner
Business Analyst
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BidURenergy, Inc.