Iran Blockade and What Next?
· Though the U.S. is introducing a blockade on Iran oil exports, we think the U.S. and Iran remain reluctant to restart the war. How Iran responds to the U.S. blockade is important. It could choose to respond by attacking Gulf energy installations before or after the 2-week ceasefire ends on April 22. Alternatively, Iran could seek a path to deescalate, such as not hitting back/extending the ceasefire/a goodwill gesture of allow some shipping through the Straits of Hormuz/setting tolls for all ships to pass through the Straits. This week needs to be watched closely to anticipate the next chapter in the conflict.
Figure 1: Iran/Iraq Tanker War 1987-88
| Incident | Comments | |
| USS Stark | May 17 1987 Iraq aircraft attacks USS Stark by mistake | 29 U.S. servicemen killed. Ship has severe list, but avoided sinking and sails to Bahrain. Iraq apologises as they thought it was an Iranian ship. |
| Bridgeton oil tanker | July 24 1987 oil tanker hit by Iran contact mine | Modest damage to huge tanker, but U.S. Navy ships had to follow Bridgeton into Kuwait due to risk of other mines. |
| USS Samuel Roberts | April 18 1988 Iran contact mine hits US frigate | 10 U.S. serviceman injured. Ship keel snapped, but did not sink due to emergency repair work. U.S. launches retaliation attack on Iranian gulf oil platforms 4 days later. |
Source: US Navy/Continuum Economics
The U.S. has announced a blockade of shipping out of the Gulf starting Monday April 13 at 10am EDT (though it is unclear whether this will be oil only or all exports/imports), reflecting Trump’s anger at not reaching a peace deal in Pakistan. The hope is that this puts economic pressure on Iran, and also political pressure via China. The question is what happens next?
· More peace talks? Trump administration’s decision to blockade makes sense from a military standpoint, as it achieves the same objective as seizing Kharg Island without boots on the ground (here) – we feel invasion is a very low probability. However, it hurts the GOP and Trump before the mid-terms. It extends the period of military tension, and more importantly keeps gasoline and diesel prices very elevated – the April University of Michigan consumer survey on Friday shows that this is hitting consumer confidence badly. Therefore, we believe the Trump administration could try a 2nd round of negotiations to reach a deal to reopen the Straits of Hormuz. This could also involve extending the 2-week ceasefire. Further talks are feasible but both sides would need to compromise to reach an agreement and the odds remain against a deal. Iran's nuclear ambitions and the volatile status of the Strait of Hormuz remain critical points of contention. Could the U.S. navy reopen the straits?
· U.S. Navy forced reopening and Iran/Iraq tanker war of 1987/88. During the Iran/Iraq war, the U.S. navy with the help of a number of other countries helped to escort tankers through the Straits of Hormuz. This was a difficult experience with Iraq mistaking the USS Stark for an Iran ship (Figure 1) and the USS Samuel Roberts nearly sunk due to an Iran contact mine. Iran asymmetric warfare through the Gulf of Hormuz has increased in strength since 1987/88, with drones able to launch from inland against ships through the Straits of Hormuz plus sea boats operating in the Straits. The U.S. minesweeping capabilities is in transition with 4 older minesweepers in Japan and 3 new littoral assault ships with minesweeping capabilities. This is one reason why Trump is furious that European allies will not use their minesweepers in the Gulf until the war is over. Additionally, it took 7 months to get the U.S. navy in place to start the escorts in 1987. It could thus be difficult for the U.S. acting alone to quickly force a reopening of the Straits of Hormuz without some Iranian cooperation.
· Iran escalation or de-escalation. How Iran responds to the U.S. blockade is important. It could choose to respond by attacking Gulf energy installations before or after the 2-week ceasefire ends on April 22. It could also ask the Houthis to join and stop shipping in the Red Sea. Alternatively, Iran could seek a path to deescalate, such as not hitting back/extending the ceasefire or a goodwill gesture of allow some shipping through the Straits of Hormuz/setting tolls for all ships to pass through the Straits.