	Geopolitical Considerations

From December 2011 to January 2012, some Iranian government officials openly threatened to close the Strait of Hormuz, a major artery of the global oil market, if sanctions are imposed on Iran's oil exports. Context and Possible Causes of Iran's Threats

Iran's threats occurred as it faced increasing likelihood that multilateral sanctions would be adopted that could reduce Iran's oil export earnings. As a result of the EU decision, some Iranian leaders immediately reiterated the threat to the Strait. Since 2006, Iran has negotiated with six countries—the so-called "P5+1," permanent U.N. Security Council members plus Germany—to identify steps that could assure the international community that Iran's nuclear program is purely peaceful. Potential Military Response

			U.S. On January 13, 2012, it was reported that "The Obama Administration is relying on a secret channel of communication to warn Iran's supreme leader, Ayatollah Ali Khamenei, that closing the Strait of Hormuz is a 'red line' that would provoke an American response...."
Although U.S. statements have addressed Iran's threat to close the Strait outright, it is widely assumed by experts and observers that the United States will act against Iranian efforts to harass or interfere with the free flow of commerce in the Strait in such scenarios discussed above. But they could also find themselves sparking a punishing—if perhaps short-lived—regional conflict from which they could emerge the primary losers.... Few believe Tehran could keep the straits closed for long—perhaps no more than a handful of days...." A December 29, 2011, press report states that "Iran can disrupt traffic through the Strait of Hormuz but probably cannot completely shut down the world's most important oil route, military analysts say.... What the Iranians can do ... is harass traffic through the Gulf—anything from stopping tankers to outright attacks. The United States imports little LNG. A disruption of oil through the Strait of Hormuz could significantly affect global oil prices. Risk of damage to oil production and export facilities in the Persian Gulf would also be of concern. Given limited bypass options, outright closure of the Strait would represent an unprecedented disruption to global oil supply and would likely cause a substantial increase in oil prices. The increased perception of risk could contribute to higher oil prices without requiring military action, though this is only effective in contributing to oil prices as long as and to the degree that global oil market participants take such threats seriously. In the event of a disruption, consumer countries could release strategic stocks to offset the impact on oil supply. The United States currently holds 696 million barrels of crude oil in the Strategic Petroleum Reserve (SPR), a publicly held stockpile of crude oil to be used to offset supply disruptions. The United States coordinates use of its SPR with other members of the International Energy Agency (IEA), which include Japan, Germany, South Korea, and other members of the Organization for Economic Cooperation and Development (OECD). Iran has the option of harassing tanker traffic through the Gulf as it has in the past, though that also runs the risk of military retaliation and alienating customers. However, it is possible that Iranian action becomes relatively more likely as more countries reduce or refuse Iranian exports. Alternatively, Iran may choose to continue making threatening statements without actually acting and/or to seek a diplomatic solution to curb oil sanctions through renewing international talks on its nuclear program. To some degree a disruption could be offset by release from the U.S. Strategic Petroleum Reserve and similar reserves in other countries. The Convention states:
Recognizing the desirability of establishing through this Convention, with due regard for the sovereignty of all States, a legal order for the seas and oceans which will facilitate international communication, and will promote the peaceful uses of the seas and oceans … Believing that the codification and progressive development of the law of the sea achieved in this Convention will contribute to the strengthening of peace, security, cooperation and friendly relations among all nations in conformity with the principles of justice and equal rights … [and] Affirming that matters not regulated by this Convention continue to be governed by the rules and principles of general international law…
Parties to the Convention agreed to the adoption of the comprehensive international treaty after nine years of negotiations.
Some officials of the Islamic Republic of Iran have recently renewed threats to close or exercise control over the Strait of Hormuz. Iran's threats appear to have been prompted by the likely imposition of new multilateral sanctions targeting Iran's economic lifeline—the export of oil and other energy products. In the past, Iranian leaders have made similar threats and comments when the country's oil exports have been threatened. However, as in the past, the prospect of a major disruption of maritime traffic in the Strait risks damaging Iranian interests. U.S. and allied military capabilities in the region remain formidable. This makes a prolonged outright closure of the Strait appear unlikely. Nevertheless, such threats can and do raise tensions in global energy markets and leave the United States and other global oil consumers to consider the risks of another potential conflict in the Middle East. This report explains Iranian threats to the Strait of Hormuz, and analyzes the implications of some scenarios for potential U.S. or international conflict with Iran. These scenarios include
Outright Closure. An outright closure of the Strait of Hormuz, a major artery of the global oil market, would be an unprecedented disruption of global oil supply and contribute to higher global oil prices. However, at present, this appears to be a low probability event. Were this to occur, it is not likely to be prolonged. It would likely trigger a military response from the United States and others, which could reach beyond simply reestablishing Strait transit. Iran would also alienate countries that currently oppose broader oil sanctions. Iran could become more likely to actually pursue this if few or no countries were willing to import its oil. Harassment and/or Infrastructure Damage. Iran could harass tanker traffic through the Strait through a range of measures without necessarily shutting down all traffic. This took place during the Iran-Iraq war in the 1980s. Also, critical energy production and export infrastructure could be damaged as a result of military action by Iran, the United States, or other actors. Harassment or infrastructure damage could contribute to lower exports of oil from the Persian Gulf, greater uncertainty around oil supply, higher shipping costs, and consequently higher oil prices. However, harassment also runs the risk of triggering a military response and alienating Iran's remaining oil customers. Continued Threats. Iranian officials could continue to make threatening statements without taking action. This could still raise energy market tensions and contribute to higher oil prices, though only to the degree that oil market participants take such threats seriously.
If an oil disruption does occur, the United States has the option of temporarily offsetting its effects through the release of oil from the Strategic Petroleum Reserve. Such action could be coordinated with other countries that hold strategic reserves, as was done with other members of the International Energy Agency after the disruption of Libyan crude supplies in 2011.
Iran's threats suggest to many experts that international and multilateral sanctions—and the prospect of additional sanctions—have begun to affect its political and strategic calculations. The threats have been coupled with a publicly announced agreement by Iran to resume talks with six countries on measures that would assure the international community that Iran's nuclear program is used for purely peaceful purposes. Some experts believe that the pressure on Iran's economy, and its agreement to renewed talks, provide the best opportunity in at least two years to reach agreement with Iran on curbing its nuclear program.