Global Energy Advisory – 7th August 2019

Smoke and Mirrors in the Strait of Hormuz

Iran has seized another ship in the Persian Gulf. That makes three such seizures in a month. Iran claims the ship was smuggling fuel to Arab states, and was suggesting that the tanker was Iraqi, which Baghdad denies. Seven crew members were on board, and are now detained, according to Iranian news agencies. In all likelihood, the small vessel was, indeed, smuggling fuel, but Iran is interested presently in more headlines about seizing “foreign” ships for the appearance of its power over vital shipping lanes in the area. In the meantime, Iran says it will deny the UK passage through the Strait for as long as the British the ship carrying Iranian crude that was seized off Gibraltar.

This is still a game of smoke and mirrors for the time being, but it will get out of hand the moment major powers work towards creating “coalitions” to patrol the Strait of Hormuz, the Gulf of Oman and the Persian Gulf.

The US is having a hard time putting together its “international coalition” to secure the Strait of Hormuz for commercial vessels, but the UK - with Boris Johnson at the helm - is now the lone country to have agreed to join up, two weeks after calling for a similar European-led mission that no one wanted to join. China is mulling over the idea of joining forces to secure shipping routes with the US, despite its continued purchases of Iranian oil in defiance of US sanctions.

As Washington attempts - rather unsuccessfully - to put its plans in motion for an international coalition to secure ships in the Strait of Hormuz, Iran and Russia are instituting their own plan to initiate joint naval exercises in the Indian Ocean, at the point where it flows into the Gulf of Oman, the Strait of Hormuz and the Persian Gulf. This is what came out of a recent visit to Moscow by the commander of the Iranian Navy.

Those “exercises” would happen between now and next spring and are intended to send a very important message: Russia and Iran are allies, and defense cooperation just ticked up a notch. If the US plays hardball in the shipping lanes, it won’t be going up against Iran alone; it will be going up against the Russian navy.

The fact is, US elections are coming up and Trump’s dangerous warmongering over Iran have not helped him in the polls, so he will most likely change tack. He wins more points with peace and that’s what he’s after right now. We expect a change in course on the Strait of Hormuz, even with Iranian saber-rattling.

What to watch behind the headlines? Iran sitting down with arch-enemy UAE to figure out an MOU on their militaries in the first bilateral talks since 2013 … These are the real actors in this region.

Oil&Gas Insider

Wednesday August 7th 2019