Blockade on Iran: a doomed strategy

The US 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 rapid regime collapse unlikely and forcing Washington to rethink its strategy in the conflict.

Article by Tom Holland published on Gavekal

It should come as no surprise that weekend discussions between the US and Iran in Islamabad ended in failure, with no agreement reached. Both parties were far apart even before the meeting, and after 20 hours of negotiations, neither side seems to have made significant concessions. However, Donald Trump’s reaction to this failure was unexpected. In a message on social media on Sunday, the US president announced a total blockade of “all ships seeking to enter or exit the Strait of Hormuz.”

The US Navy “will seek and intercept any ship in international waters that has paid a toll to Iran,” Trump declared. “Nobody will pay an illegal toll and benefit from safe passage on the high seas.”

Judging by his statements, Trump appears to be pursuing two goals by announcing this blockade:

1. Restore freedom of navigation and unrestricted passage of energy cargoes through the strait, by forcing Iran to remove its toll on friendly ships and abandon its implicit threat of drone or missile attacks against ships that refuse to pay. 2. Pressure the Iranian regime to abandon its nuclear program by cutting its oil exports – and therefore its foreign currency revenues – with the hope this will lead to the collapse of the Iranian economy, and thus the regime itself.

So, will Trump’s blockade achieve its objectives?

Almost certainly not. Introducing a naval blockade is hardly a straightforward way to ensure freedom of navigation and end disruptions to global energy trade. By Monday morning in Asia, markets reacted with risk aversion: Brent crude prices surpassed $100 per barrel and regional stock indices dropped by about 1%.

In the coming days, if the US follows through on its threat and Iran does not quickly give in (as suggested by its stance in the Islamabad talks), the effect will be to block around 2 million barrels per day of oil, mainly Iranian and Iraqi, that recently left the Persian Gulf. This will obviously do nothing to boost 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 cargoes approved by Iran would pose all sorts of problems. Will the US Navy intercept ships carrying oil to China? What if they fly the Chinese flag? And if Iran deploys units armed with heavy machine guns or rocket launchers from the Revolutionary Guards? American boarding teams arriving by helicopter would be extremely vulnerable. Losses would be highly likely.

Moreover, the chances that a imposed blockade quickly brings Iran to its knees are low. Essentially for the same reasons that seizing Iran’s main oil export terminal, Kharg Island, would not cause an immediate economic collapse. This was demonstrated two weeks ago.

At the time, the report indicated:

“The aim would be to prevent Iran from exporting its oil, deprive it of foreign currency revenues, and cause the collapse of its economy and regime. There are potentially simpler ways to disrupt most of Iran’s oil exports, including seizing and detaining tankers in the Arabian Sea, which would also interrupt exports from the alternative terminal of Bandar Jask, on the Gulf of Oman. But in the short term, none of these measures would bring about 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 deal and imposed sanctions. In 2020, Iranian oil exports fell below 500,000 barrels per day. Yet, the Iranian economy did not collapse (even with the Covid pandemic). In any case, not enough to overthrow 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 about 100 million barrels stored at sea off 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 begin to exert real pressure on the regime. But at this point, the Iranian government probably thinks it is better off than Trump enduring another six months of conflict.

These arguments remain valid, as do those opposed to attempting to forcibly open the strait, as outlined in the same report:

“As the US concentrates more resources in the region, calls are growing for the US 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 traverse it each day with Iran’s approval, apparently after paying a ‘toll’ to the Iranian government, payable in renminbi. Ships associated with the West do not transit because shipping companies do not want to pay prohibitive insurance premiums or expose their crews, ships, 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 capacity to deny passage to ‘hostile’ ships by brandishing the threat of drone attacks. Attempts to escort commercial vessels by military ships 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 Iranian-approved cargoes in the Strait of Hormuz will not achieve the desired objectives. The US will need to rethink its strategy – even if it doesn’t necessarily mean a return to negotiation tables.