Washington’s move to choke off Iranian maritime traffic is sending shockwaves through markets, pushing crude briefly past USD 100 a barrel and putting regional producers on high alert after Tehran threatened to retaliate against wider maritime infrastructure.

The action: The US military said it started blocking all maritime traffic entering and leaving Iranian ports on the Gulf and Gulf of Oman yesterday, following collapsed talks in Islamabad.

The lane remains open (for now): A US-sanctioned Chinese tanker has already passed through the Strait of Hormuz since the blockade began, according to shipping data. To keep the corridor viable for regional crude exports, US warships started mine-clearance operations, and Washington expanded war-risk support for transiting ships to USD 40 bn days before the blockade order.

The contained US-Iran standoff is threatening to spill over. Tehran is warning that if its port access is cut off, “no port in the [Arabian] Gulf or Gulf of Oman would be secure” — sharply raising the risk profile for eastern seaboard facilities and regional shipping lanes long seen as relatively secure.

Oil markets feel the sting

Brent crude jumped as much as 8%, briefly crossing the USD 100/bbl threshold, as traders price in the loss of Iranian barrels and the heightened risk premium in a corridor that normally carries a fifth of global oil and gas.

While Iran entered the conflict with a 180 mn-barrel floating cushion, any sustained squeeze shifts the burden to Opec+ — and to Saudi Arabia’s roughly 3.1 mn bbl / d of spare capacity. Blocking shipping to and from Iranian ports would remove around 2 mn bbl / d from global supply, with Iranian exports at 1.8 mn bbl / d in March and 1.7 mn bbl / d so far in April.

A blockade alone is unlikely to isolate Iran

How sustainable is an Iranian blockade? Iran still retains a land border and multiple alternative import routes, limiting how effectively a maritime blockade alone could isolate the country. It also remains in contact with key buyers over transit through Hormuz, with Iran’s envoy to New Delhi saying Tehran has been in good contact with India over the passage of Indian ships through the strait.

At the same time, the impact of a blockade would likely be limited. Environmental risks, the danger posed to US vessels enforcing the blockade, and reluctance among allies to support the effort all undermine its feasibility. “Trump wants a quick fix. The reality is, this mission is difficult to execute alone and likely unsustainable over the medium to long term,” Dana Stroul, a former senior Pentagon official, told the Guardian.

AND- Beijing is the clearest external pressure point. China is the primary buyer of Iranian crude, and wartime shipping patterns indicate China-linked cargoes had still been getting through. If the blockade holds, it will test Beijing’s willingness to intervene to secure its energy supply.

Tags: