The American blockade on Iran disrupts global energy markets and particularly penalizes Asian economies, without guaranteeing Iranian concessions or an improvement in regional maritime security.
In the short and medium term, Iran has resources to resist pressure, making a quick regime collapse unlikely and forcing Washington to rethink its strategy towards the conflict.
Article by Tom Holland published on Gavekal
It surprised no one that the weekend discussions between the United States and Iran in Islamabad ended in failure, with no agreement reached. Both parties were far apart even before the meeting, and during 20 hours of negotiations, neither side seems to have made significant concessions. But Donald Trump’s reaction to this failure was unexpected. In a message posted on social media on Sunday, the American president announced a total blockade of “all ships seeking to enter or exit the Strait of Hormuz.”
The US Navy “will seek out and intercept any ship in international waters that has paid a toll to Iran,” Trump declared. “No one will pay an illegal toll and benefit from safe passage on the high seas.”
Based on his statements, Trump seems to have two objectives in announcing this blockade:
1. Restore freedom of navigation and unimpeded passage of energy shipments through the strait, by compelling Iran to lift its toll on friendly ships and abandon its implicit threat of drone or missile attacks against non-paying vessels.
2. Press the Iranian regime to abandon its nuclear program by cutting off its oil exports—and therefore its foreign currency revenues—in the hope that this will cause the collapse of the Iranian economy and, consequently, the regime itself.
So, will Trump’s blockade achieve its objectives?
Almost certainly not. It is hardly obvious how a naval blockade will ensure freedom of navigation and end disruptions in the global energy trade. By Monday morning in Asia, markets reacted with a risk aversion movement: Brent crude oil prices surpassed $100 per barrel, and regional stock indices dropped by around 1%.
In the days ahead, if the US follows through with its threat and Iran does not quickly yield (as suggested by its stance in the Islamabad talks), the effect will be to block about 2 million barrels per day of oil, mainly Iranian and Iraqi, that have recently left the Persian Gulf. This obviously will not improve the morale of Asian economies and markets, already affected by high energy prices and growing fuel shortages. It will also not help Arab oil exporters in the Gulf, let alone Iraq.
In the longer term, an American blockade of Iranian oil shipments approved by Iran would pose all sorts of problems. Will the US Navy seize ships carrying oil to China? What will happen if they fly Chinese flags? And if Iran deploys Revolutionary Guard units armed with heavy machine guns or rocket launchers? US boarding teams arriving by helicopter would be extremely vulnerable. Losses would be highly likely.
Moreover, the chances of a blockade quickly bringing Iran to its knees are low. Essentially for the same reasons that taking control of Iran’s main oil export terminal at Kharg Island would not cause an immediate economic collapse. This was exposed two weeks ago.
At that time, the report indicated: “The aim would be to prevent Iran from exporting its oil, deprive it of foreign currency revenues, and bring about the collapse of its economy and regime. There are potentially simpler ways to disrupt most of Iran’s oil exports, including by boarding and detaining tankers in the Arabian Sea, which would also disrupt exports from the alternative terminal at Bandar Jask, on the Gulf of Oman. But in the short term, none of these measures would cause the collapse of the Iranian regime.”
Trump had already tried to bring the Iranian economy to its knees in 2018 when he withdrew from the JCPOA nuclear agreement and imposed sanctions. By 2020, Iranian oil exports had fallen below 500,000 barrels per day. Yet, the Iranian economy did not collapse (even with the Covid pandemic). In any case, not enough to topple the regime.
In the short term, the Iranian economy can continue to function without significant foreign currency revenues. Internally, the central bank can continue to create currency to sustain activity. And as long as Iran can obtain lines of credit and continue to generate foreign currency by selling the roughly 100 million barrels stored off the coast of Malaysia and China, it can continue to buy materials—like semiconductors—needed for its war effort.
In the longer term—about six months—a blockade of Iranian exports would truly begin to pressure the regime. But by that stage, the Iranian government probably estimates it is better off than Trump in enduring another six months of conflict.
These arguments remain valid, as do those opposing an attempt to forcefully open the strait, as outlined in the same report: “As the US concentrates more resources in the region, calls are growing for the American military to ‘open’ the Strait of Hormuz by force. However, this is much easier said than done. To begin with, the strait is not ‘closed.’ A small number of ships continue to transit it every day with Iran’s agreement, apparently after paying a ‘toll’ to the Iranian government, payable in renminbi.
Ships tied to the West do not transit because shipping companies do not want to pay prohibitively high insurance premiums or expose their crews, vessels, and cargoes to Iranian drone attacks. The US has overwhelming firepower in the region. But in the era of asymmetric warfare, this superiority does not easily neutralize Iran’s ability to deny passage to ‘hostile’ ships by threatening drone attacks. Attempts to escort commercial ships with military vessels or enforce Iranian rules in the strait will change nothing. They will only expose American forces to attacks.”
In summary, an American naval blockade of approved Iranian shipments in the Strait of Hormuz will not achieve the desired objectives. The US will need to review its strategy—even if that does not necessarily mean a return to the negotiating table.
