Iran, the United States and The Gulf: How close is conflict?

An Oxford Analytica Open Conference Call, Thursday January 12, 2012

Call summary

Tensions are likely to remain high in the Strait of Hormuz throughout 2012. Relations between Iran and the United States will remain tense as both countries head towards key elections. The situation can be characterised as one of sustained volatility and persistent tensions. However, neither side believes their interests would be served by conflict at present. The outbreak of hostilities therefore remains unlikely. Nevertheless, heightened tensions have raised the risk of a strategic miscalculation that could spark conflict.

IRANIAN CALCULATIONS

The regime in Tehran is a ‘survivalist actor’ -- it knows how to absorb shocks and international isolation, as its survival of the Iran-Iraq war in the 1980s shows. By closing the Strait of Hormuz the regime would critically hurt itself, shutting off the route for its own oil exports. The regime depends on crude oil exports for 60% of revenues and 80% of its hard currency.

Furthermore, it knows that such an action would be tantamount to an act of war and is aware that its military would likely be devastated in any confrontation with the United States, as was the Iraqi military in 2003. It would therefore only be likely to attempt to close the Strait if its exports to Asia were blocked from leaving a fully-enforced international embargo.

DOMESTIC POLITICS

Domestic tensions are high as a younger generation of conservatives, led by President Mahmoud Ahmadi-nejad, seeks to challenge the clerical power represented by Supreme Leader Ali Khamenei and his establishment. As parliamentary elections approach in March, these tensions are likely to ensure policy paralysis. This will affect strategic decision-making on foreign policy and the nuclear programme.

Ahmadi-nejad is losing ground to the hard-line camp surrounding Khamenei and the Islamic Revolutionary Guard Corps (IRGC) which is consolidating its position in the political sphere. While the IRGC leadership remains loyal to Khamenei, there are some signs that conservative infighting is creating divisions within its ranks.

The regime is concerned about the potential for social and political unrest. The opposition Green Movement, which challenged the regime during the 2009 presidential elections, remains weak and unlikely to pose a threat to it in the immediate future. However, they could still carry out protests.

SCENARIOS FOR A BLOCKADE

There are various scenarios under which Iran might decide to attempt to block the Strait:

Israeli attacks against Iranian nuclear facilities, provoking retaliation from Iran.
US attack on Iran’s nuclear facilities, provoking retaliation.
Iran’s decision to respond to throttling international sanctions.
In response to a covert war, Iran carries out its own covert operation against a Western target.
A strategic miscalculation or misstep, which would trigger limited conflict in the lower Gulf.

TRIGGER POINTS

There are various trigger points which would indicate that a closure of the Strait may be imminent:

Deterioration in Ahmadi-nejad’s domestic position.
Severe decline in the Iranian economy.
Rise in political tensions in Israel, causing Prime Minister Benjamin Netanyahu to order a strike on Iranian nuclear facilities.
Disclosure of a significant advance in the Iranian nuclear programme, for example a nuclear test.
A mistake by US or Iranian forces in the Gulf.
Clash between Hizbollah and Israel, possibly prompted by the Syrian regime as it weakens.

IMPACT OF SANCTIONS

The economy. Sanctions are increasing the pressure on Iran’s economy, creating a 20% premium on doing business in Iran. Growth is well below potential, at 2-3% of GDP. Iranian banks have been shut out of the international banking sector; factories are closing and investors are fleeing to safe-haven assets. The shipping sector and investment in oil infrastructure are also suffering. The rial is depreciating rapidly as Iranians withdraw their money from the banks, while tighter restrictions are limiting access to foreign capital. Iran is dependent on a break-even price for oil of 90 dollars. However, the economy is not yet in crisis and is likely to absorb the damage of international sanctions for the time being.
International oil markets. Major buyers are trying to reduce their dependence on Iranian oil. Even if China and India reduce their purchases by 25%, Iran will manage. Meanwhile, India and China are seeking alternative sources of oil.
The nuclear programme. Iran appears to be 12-18 months from ‘breakout capability’ -- the point at which it acquires all the skills and parts needed to build a nuclear bomb quickly. The International Atomic Energy Agency’s confirmation earlier this week that the enrichment of uranium to 20% purity had begun at the highly-fortified Fordow underground plant is a marker of the process that Iran’s nuclear programme despite the sanctions and covert operations targeted against it. Once they have enriched uranium to 20%, the Iranians can purify it to 90% without much difficulty.

ISRAELI RESPONSES

Israel is concerned about Western fatalism regarding Iranian nuclear advancements and has been trying to regain the initiative, rallying support for tighter sanctions. For the time being it supports this option over that of a military strike because:

It is hard to gauge whether such a strike could sufficiently set back Iran’s nuclear programme.
A strike may provoke a serious reaction in the region, for example increased hostilities with Hamas, and jeopardise the peace agreement with Egypt.

As Iran reinforces the defences around its nuclear facilities, Israel knows that it will become harder for its military to carry out a successful strike. It, therefore, becomes more dependent on the United States’ superior hardware, for example its bunker-busting bombs, to carry out a successful strike.

GULF CONCERNS

The Gulf states are vulnerable because their export routes are largely via the Strait of Hormuz. They are also concerned about their own Shia populations, which they believe Iran could incite against them in the case of any regional conflict.

The United Arab Emirates is seeking an alternative outlet by constructing a new pipeline. However, this has been set back several months.

Iran could target the Gulf states in the event of a regional conflict and may launch missile attacks.

REGIONAL IMPACT

Syria and Iraq. Increased pressure on Iran causes trouble for its key regional ally in Damascus, and may accelerate Assad’s fall. Shia militants affiliated to Tehran could launch retaliatory attacks from Iraq in the event of any conflict in the Gulf.

Turkey. Ankara acts as an important intermediary between Iran and the United States, and is also a major sanction-breaker; it is cautious about fully supporting the renewed campaign against Iran because of the West’s rejection of a compromise agreement mediated by Turkey last year.