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Iranian leaders are threatening to close the Strait of Hormuz to international traffic, and on Wednesday the parliament passed a law “forbidding” foreign warships to enter the Persian Gulf.
These moves came as the United States and Europe consider moves that will dramatically increase the economic and diplomatic pressure on Tehran – moves that already have caused the Iranian currency to lose more than half of its value, plunging from 10,500 rials to the U.S. dollar last month to around 18,000 rials on Monday, before recovering to around 15,500 on Wednesday.
On Dec. 31, President Obama signed a Defense Authorization bill that includes comprehensive new sanctions against Bank Markazi, Iran’s Central Bank. Existing sanctions against Iranian commercial banks have forced Iran over the past two years to increasingly take payment for its oil exports – the overwhelming hard currency income for the regime – through Bank Markazi.
While loopholes in the legislation exist that Obama has pledged to exploit, the National Iranian American Council – a group that consistently reflects the concerns and policy goals of the Iranian regime – lobbied hard against it.
Most significant among NIAC (and Tehran’s) worries is the potential that “Tehran could find itself unable to execute oil sales,” a NIAC briefing paper warned.
But that is precisely the reason Congress finally took the step of imposing a worldwide ban on Iran’s Central Bank after years of hand-wringing that such a move would drive up oil prices and impinge upon the president’s ability to conduct foreign policy.
“Without immediate and serious action, the Islamic Republic of Iran will have a nuclear weapons capability in the near future,” Senator Mark Kirk said when he filed the amendment in November. “As the world’s leading state sponsor of terrorism, it’s quite likely that the Iranian regime would transfer its nuclear weapons to terrorist organizations like Hezbollah and Hamas. And we can be sure that an Iranian bomb will set off a nuclear arms race in the Middle East – from Saudi Arabia to Egypt. We must act now or face the consequences of a nuclear Iran.”
So what will Iran really do if push comes to shove? And how will the increased tensions affect the price of oil?
Scenario 1: Iran attempts to close the Strait of Hormuz.
The Iranian navy could attempt to use its Russian-made Kilo-class diesel-electric subs and smaller home-made Ghadir-class boats to torpedo ships entering the narrow sea lanes of the Strait, or try a repeat of its 1988 effort to mine the Strait.
Iranian leaders have made many threats recently that this is what they will do, boasting like drunken sailors that closing the Strait is a simple matter they could undertake with no preparation that would devastate world oil markets and exacerbate the international economic downturn.
But most analysts believe such a move would provide an acceptable excuse for the U.S. Navy to unleash its overwhelming firepower against Iran, sinking the majority of Iran’s major surface ships, knocking out its coastal artillery and anti-shipping missile batteries, and perhaps sinking offshore oil platforms, as during Operation Praying Mantis in April 1988.
“If the Islamic Republic wants to commit suicide, then by all means, close the Strait of Hormuz right away,” the Washington Times editorial page remarked recently.
Consequence: oil prices increase sharply for several days, then drop like a rock. Iran loses.
Scenario 2: Iran uses “swarming” attacks against U.S. warships in the Persian Gulf.
When the USS John C. Stennis or another U.S. carrier attempts to re-enter the Persian Gulf (which the U.S. Navy sometimes refers to as the “Arabian” Gulf), Iran could carry out its threat to attack – not using large surface ships or missile boats, but with swarms of small “go-fast” boats armed with Revolutionary Guards troops and shoulder-launched weapons.
Such attacks could have dramatic success. U.S. planners have been worried about this since at least 2002, when they had to halt a war -gaming exercise after Iranian go-fast boats sank the majority of the U.S. fleet.
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