Iran’s threat to push oil prices to $200 a barrel “is more realistic than the assurances” offered by the US, EU and the International Energy Agency (IEA), says Francesco Sassi, professor of energy geopolitics at the University of Oslo and author of the newsletter Energy Geopolitics & Statecraft. He points out that prices have risen for two consecutive days and approached $100 a barrel despite the 32 member countries of the IEA announcing the largest strategic oil reserve release ever.
The IEA move, the expert says, “frankly, is ineffective,” noting it would “certainly” affect markets if the conflict ended within a few days. “But if the closure of the Strait of Hormuz continues, or flows are significantly slowed for weeks or months, it would, unfortunately, be useless.” There is a risk of an unprecedented crisis because a closure of the strait is “a historic, epochal event” that “also changes the whole regional energy geopolitics. In future, Hormuz will be seen very differently, as will Iran’s capacity as a regional power.”
Sassi considers Tehran’s warning “definitely more credible than the European Commission’s claims that Europe does not face short-term supply repercussions.” The EU needs “much more candid communication” about the price surge triggered by the ongoing war: it should acknowledge that “the outlook for this energy crisis is worse than in 2022-2023. And as measures to curb energy consumption were considered before, it is time to start thinking about them again.” The effectiveness of such measures decreases over time: “the closer we get to next winter, the less time we will have to react to what is happening.”
For the public, Sassi says, the message should be frank. For policymakers, the lesson is to “set aside the Eurocentrism of the Commission and European governments.” They must “accept that energy geopolitics today is decided globally, and Europe is not at the center of that world.” The current price crisis builds on the earlier shock caused by Russia’s invasion of Ukraine and is “already burdensome in itself.” If this crisis lasts weeks or months or longer, the energy, economic and political effects would be “even more severe” than the ongoing conflict between Moscow and Kyiv. “And it would be a huge test for Europe’s policy of diversifying away from Russian hydrocarbon imports: we would truly be put to the test if the situation does not change.”
“Port blockade expands, markets fear further production cuts”
Sassi warns it is realistic that countries on the Persian Gulf-whose maritime traffic must pass through the Strait of Hormuz-could stop exporting oil through that route. “The only country with substantial capacity to diversify is Saudi Arabia, and to some extent the United Arab Emirates. But even that supply is heavily threatened by events in the Red Sea. On the other side, the entrance to Hormuz is far from secure. The closure today of Oman’s most important terminal, which lies completely outside Hormuz, shows the threat posed by drones and other unidentified actors capable of striking ships in the region.”
All this means that Iran’s port closures are expanding rather than contracting, Sassi continues. “The diversification of existing Gulf infrastructure does not at all guarantee alternative capacity for the largest OPEC exporters”: Saudi Arabia, Iraq and the UAE. “All three have cut their oil production significantly,” and barring changes in the conflict they “will likely reduce output further from already lowered levels: and that is what markets fear.”
“Trump insurance proposal contradicted by his own Navy”
Rising prices are also affected by the apparent weakness of Donald Trump’s proposal to offer insurance and US military backing to reassure commercial ships, especially tankers, transiting the Persian Gulf and the Strait of Hormuz. “It was contradicted by his own Navy,” Sassi notes, which “has said it cannot guarantee safe passage for any vessel at this time,” although he acknowledges that “a proposal that comes from the US president must be taken into account.”
Given how the war is evolving, global energy security and the renewed importance of oil and gas to economies worldwide, Sassi says the plan “should prompt reflection” within the EU and its member states. It represents “a very different approach from the idea of the United States as a defender of free navigation, especially since they have never required other countries to purchase insurance to guarantee seaborne hydrocarbon shipments internationally,” he points out.
“Potential Houthi attacks on US naval assets would benefit Iran”
Attention must also be paid to the Houthi threat-the Iran-backed Yemeni rebel group-that threatens navigation at the other major regional chokepoint, the Bab-el-Mandeb Strait at the entrance to the Red Sea. The area is currently patrolled by the US aircraft carrier USS Gerald R. Ford, “which serves as a deterrent,” but that carrier “cannot remain there permanently, because it would become a potential military target.” Furthermore, the other US carrier in the region, the USS Abraham Lincoln, will need to redeploy from the Gulf of Oman for operational reasons: “not coincidentally a third carrier is arriving from the Atlantic.” The moment these assets move, “why wouldn’t the Houthis play that game as well?”
The Yemeni rebels will face “a matter of survival, because the fall of the Iranian regime would likely end the aid they receive from their main international backer. Applying pressure on Bab-el-Mandeb and the Red Sea would further benefit Iran. If they manage to block the route, or tie up a US carrier in a local conflict, they would hand another advantage to Tehran, which could use it in various ways-escalating attempts to strike US ships or targeting other energy infrastructure in Gulf states.” (by Otto Lanzavecchia)
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