Israel-Iran war: The Strait of Hormuz and why oil remains Iran’s likely target for retribution

Oil has jumped on fears that America’s bombing of three nuclear sites in Iran will trigger retaliatory strikes on Gulf oil infrastructure.

The price of crude spiked 5.7 per cent in early trade on news Iran’s parliament last night voted to shut down the Strait of Hormuz, the shipping channel 39 kilometres wide at its narrowest point that is responsible for one-fifth of the seaborne trade in oil.

Whether Iran can do that is a different story.

Its military capabilities have been depleted, and the consequences may be too severe. US Vice President JD Vance warned it would be “suicidal” for Iran to attempt to attack oil infrastructure.

But if the regime is backed into a corner, and faces extinction, it may decide to strike the one product that has propped up Iran’s neighbours and still remains central to the global economy.

When a 2020 US attack killed one of the regime’s key military commanders, Iran retaliated by attacking US airbases in Iraq - but held off in its response for long enough that there were no US casualties.

Michael Feller, a former Australian diplomat and now chief strategist at Geopolitical Despatch, said Iran’s 2020 response was about saving face while avoiding a major military response. The US attack on its nuclear facilities and calls for regime change means this time the kid gloves will come off.

“There’s been so much rhetoric in the last two or three days around regime change, and there’s been so much trust, frankly, lost between the US and Iran, I don’t think they’re going to go back to the negotiating table,” he says.

“A sufficient number of decision-makers in Iran will believe this is an existential crisis, therefore, they may as well pull that existential option, which is ... strikes against US facilities in Qatar or Bahrain, which would drag the US into war.”

Attacks may end up more along the line of guerrilla warfare than an all-out military operation that would bring it into direct conflict with the US.

That view is shared by John Calabrese, of the Middle East Institute.

“If Iran retains any capabilities — missiles, drones, proxies, cyber, or terror cells — it now has little reason not to use them. A direct US strike on its nuclear facilities shatters prior restraints and pressures Tehran to respond forcefully.

“Expect asymmetric retaliation. A new and dangerous phase of confrontation is likely underway.”

Mr Feller believes the next 24 hours will be crucial, and expects that Iran will attempt to drag the US into another Mid-East quagmire.

The most effective way to do that would be to target oil infrastructure.

That can occur in a number of ways.

Disrupting navigation

GPS jamming is already in use. According to the French Government’s Maritime Information, Cooperation and Awareness Centre (MICA), there have been more than an average of 970 incidents of GPS jamming a day in the Persian Gulf since 13 June, with one of the main hotspots just off the Iranian island of Bandar Abbas.

MICA said it may have been an “aggravating factor” in the collision between two tankers in the Gulf of Oman, just outside the Strait last week. GPS jamming, MICA said, “makes it harder to navigate safely at night, in poor visibility and/or when traffic density is heavy.”

Mine the Strait

Naval mines could be a cheap and effective tool.

In 2019, the US accused Iran of using limpet mines attached by divers to damage two foreign tankers off the coast of Oman. Iran denied the attacks, but then-Secretary of State Mike Pompeo asserted that no other state had the level of expertise and sophistication to conduct such an operation.

Iran used mines to deadly effect during the Tanker War of the 1980s, and still maintains one of the largest stockpiles in the region.

According to the Robert Strauss Center at the University of Texas, Iran holds more than 2,000 mines, ranging from vintage contact types to modern influence mines that can detect a ship’s acoustic or magnetic signature and detonate without warning. Some, like the Chinese-made EM-52, fire a rocket-propelled warhead straight up from the sea floor.

History suggests how disruptive this can be. During the Persian Gulf War, Iraq laid more than 1,100 mines across a 100-mile-wide stretch near the Shatt al Arab. In February 1991, the USS Tripoli and USS Princeton were both struck. Despite immediate action by Europe and the United States, it took more than two months to clear the waters of the mine threat.

Iran, however, has just three Kilo-class submarines capable of deploying the more advanced types, so its real asset is its fleet of IRGC speedboats, which can scatter simpler mines covertly at choke points.

Laden supertankers are difficult to sink outright, but the goal may not be destruction. According to the Strauss Center’s Hormuz Working Group, which has conducted a military campaign analysis of attempts to shut the Strait, only six or seven tankers (2 million barrels each) would be affected while the minefield is active, assuming “tankers continue to attempt to complete their routes as normal.”

Attack tankers with fleets of boats, drones or cruise missiles

More damaging to the fleet of tankers, according to the Strauss Center, would be the Iranian Revolutionary Guard’s fleet of small boats, potentially used in a suicide-style attack, as with the USS Cole in 2000.

In that attack, a fifteen-foot skiff, laden with more than one hundred kilos of explosives, rammed the vessel amidships, killing 17 American sailors and wounding 39 others.

The Strauss Center estimates a coordinated series of attacks by Iran could disable a third of the tanker traffic on a single day, jeopardising 14 million barrels of oil.

Iran is believed to possess hundreds of anti-ship cruise missiles (ASCMs) positioned along its southern coastline, with the range and mobility to cover the entire Strait of Hormuz. In simulations, Iran could “significantly damage about 25 per cent of the tanker traffic on a given day, or about five VLCC tankers,” the Strauss Center said.

The country has also been mass-producing Shahed drones, used to devastating effect by Russia against Ukraine. Many of those have been deployed against Israel, with most intercepted, but they would be far more effective at close range against non-military targets like tankers.

Attack neighbouring infrastructure

A less likely alternative, given the thawing of relations between Iran and neighbouring Saudi Arabia and the UAE. The Saudis even denounced the US military action in a rare show of solidarity with Iran.

But if Iran wants to hit the global economy, and US President Donald Trump’s desire to get oil down to $US50 a barrel, hitting the largest oil-producing states would be a way to do that.

Iranian ballistic missiles could easily target oil and gas facilities across the Gulf, and would likely draw US retribution.

Deniable sabotage, perhaps by Iranian proxies, could also damage pipeline infrastructure that bypasses the Strait of Hormuz, including Abu Dhabi’s pipeline to the Gulf of Oman and Saudi Arabia’s pipeline to the Red Sea.

The oil shock

If Iran retaliates militarily, the impact on oil markets would be immediate. AMP chief economist Shane Oliver said oil could spike to above $US100 a barrel, and possibly to $US150.

“This would likely only be brief, as the US military would likely quickly move to stop Iran,” he said. “But even if it’s only for a few weeks, it would still be a big blow to confidence regarding the economic outlook.”

Higher oil prices would be felt at the bowser with $US100 oil potentially adding 25 cents a litre to Australian petrol prices on top of the 15 cents a litre rise implied by current oil prices, Dr Oliver said.

Global concerns about spiking oil prices, and its impact on the wider economy, “could push shares down by 5–10 per cent at least,” Dr Oliver said.

Regime change unlikely

The US appears to be hoping Iran backs down or its people rise up.

Getting rid of the Ayatollahs won’t be so easy. The Iranian Revolutionary Guard, which answers to the ruling clerics, have profited enormously from their control of the country’s oil and would have seen the fate of other oil dictators, like Libya’s Muammar Gadafi.

“It would be a very brave Iranian indeed who’d be calling for regime change while the bombs are falling,” Mr Feller said.

More likely, Iran’s leadership will lick its wounds and take its nuclear ambitions deeper underground.

“They haven’t even gotten rid of the nuclear stockpiles, it seems,” he said. “So... if it’s just to degrade (the program), they’ve won,” Mr Feller. “More likely, they’ve increased the motivation for Iran to behave badly.”

“You degrade capability, you increase intent. That’s where we are today.”

Mr Trump and Israeli Prime Minister Benjamin Netanyahu may have achieved their short-term goals, but the longer run impact could be greater global uncertainty.