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Strait of Hormuz: Oil on water and a confluence of risks | Analyst Picks | RiskMap 2020

Strait of Hormuz

Iran risk forcast

Oil on water and a confluence of risks

Software may be eating the world, but in some instances physical geography continues to be decisive. Just over 30% of the world’s seaborne oil supply passes through the Strait of Hormuz, and the shipping bottleneck has emerged as a key protagonist in the strategy of “maximum pressure” against Iran adopted by US President Donald Trump. Iran knows that any attempt to close the strait will likely provoke an overpowering military response, but Tehran understands that simply flexing its muscles in the vicinity of the strait causes shipping and insurance rates to jump and Gulf Arab states to become trepidatious.

Iran has invested in a wide range of asymmetric, clandestine and proxy capabilities that allow it to threaten the states that rely on the strait and the physical assets passing through it. It also judges that its adversaries are risk averse, giving the Islamic republic considerable leeway to provoke and threaten without facing substantial retribution. President Trump’s decision to kill one of Tehran’s top military commanders in response to the death of an American contractor in an attack carried out by an Iran-backed faction in Iraq may cause Iran to reassess the extent of this risk aversion. Iran in 2020 will likely continue its game of cat and mouse, exposing the vulnerability of the world’s energy supply and pressuring the US to ease sanctions. Expect intermittent attacks of various degrees of severity, both in the physical and cyber worlds.

The US and its partners face a test of their patience and commitment, as well as a test of what red lines they are willing to enforce. As small as the strait and the adjacent Gulf are, it remains difficult to fully protect all the critical infrastructure that rings it and all of the ships passing through. Trump also faces an increasingly difficult re-election campaign in which higher gas prices at the pump could weigh on his popularity.

War remains unlikely. However, each additional Iranian provocation is more and more likely to be met with a military response, and Trump’s instinct is to calibrate such responses so that they send an overwhelming – and unmistakable – message to the Islamic republic. Trump will have to push restart on negotiations with Iran if he does not wish to be a prisoner of the Gulf’s unforgiving geography.




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