Trump’s oil block plan leads Strait to slump

Donald Trump is unpopular at home too (Pic: flickr/ Mobilus In Mobili)

Donald Trump decided last week to call a ceasefire an hour and a half before he had pledged to bomb Iran back to the “stone age”.

One reason was his plummeting poll figures. But another was undoubtedly that his threat of Armageddon for Iran was also a threat of Armageddon for the world economy.

The most serious economic consequence of the Iran war in the advanced Western industrialised economies has, so far, been the big rise in the price of oil.

Even after the price fell back following the ceasefire, the benchmark price of Brent Crude—the main indicator of the state of the oil market—was 50 percent above its pre-war price.

However, the headline price of oil doesn’t tell the whole story.

The price most often quoted is for future deliveries of oil.

It is based on a bet that the Strait of Hormuz will be reopened fairly soon and that supply will quickly return to near normal levels.

But the price of oil for immediate delivery now is currently much higher than this. This reflects a massive shortage of supply. That gap between the price now and future prices has never been larger.

Even the highest oil prices are lower than they might have been were it not for emergency measures to increase supply.

Some 400 million barrels are being made available from the “strategic reserves” held by major producers, such as Germany and Japan.

An additional four million barrels per day is being shipped along a 750-mile pipeline from Saudi Arabia’s eastern oil fields to its Red Sea port of Yanbu.

And some Western sanctions have been lifted on Russian and Iranian oil.

Trump may still go for the Armageddon option, in which case Iran could attack and perhaps destroy the Saudi pipeline to Yanbu. An Iranian drone attack has already reduced the pipeline’s oil flow by 10 percent.

In Yemen, the Houthis are currently in a ceasefire stand-off with the US and Saudi Arabia. Were that to end, they could shut the Strait of Bab el-Mandeb through which some 10 percent of seaborne oil has been flowing.

And Iran could expand its attacks on oil and gas facilities in the Gulf states. Already some 17 percent of capacity has been lost at the Qatar gas facility at Ras Laffan following air strikes. That will take years and billions of dollars to restore.

Iran could also take measures to block the Strait of Hormuz on a longer-term basis.

Some 25 percent of the world’s seaborne oil and 20 percent of its liquified natural gas passes through the Strait.

That is equal to the daily oil consumption of the five largest European economies put together. A further prolonged cut in supply—or even worse, another dramatic reduction in supplies—would be even more devastating for the world economy.

It’s not just fossil fuels that are at stake. Up to 50 percent of the world’s urea and sulphur, and 35 percent of ammonia and nitrogen—all vital in fertiliser production—are at risk too.

And some 30 percent of the world’s helium gas, vital in semiconductor production and medical imaging, used to come through the Strait before the war.

Trump is already back on the rampage after the failure of last weekend’s talks in Pakistan’s capital Islamabad. He says he will use the US navy to ban any boat transiting the Strait from Iranian ports or after paying a tariff to Iran.

This measure could stop the two million barrels of oil per day currently being exported by Iran—mostly to China.

Washington’s move is allegedly to put pressure on China in the hope that it will pressure Iran to cave in to US demands.

Trump justifies his insistence that Iran abandons its nuclear ambitions on the grounds that it has “such volatile, difficult, unpredictable people”.

But it’s Trump himself who is the most volatile and unpredictable of world leaders.

We have to hope for the sake of the Iranian people—and for all workers who will suffer from a collapse of the world economy—that Trump will chicken out again before triggering Armageddon.