Jose Raul Capablanca, the Cuban who was world chess champion in the 1920s, was asked how many moves ahead he saw. “Only one. But it is the right one,” he replied. The US is about to make its next choice in the Gulf oil struggle, but it may be looking not only at the wrong move but at the wrong board.
The US and Iran reached a temporary ceasefire on April 7, after more than a month of mayhem. Brent crude oil prices promptly dropped from almost $110 per barrel to below $95. The combatants signed the memorandum of understanding on June 17 and, by late last month, prices had fallen to $73 per barrel, barely above the immediate pre-war level.
This gave the US an opportunity to do something: to negotiate a durable peace, or to improve its position ahead of another round of fighting. It did not really do either.
By almost every measure, the US position has deteriorated. The pause in fighting did not recharge global petroleum inventories: they kept falling, albeit more slowly, as flows from the Gulf remained well below pre-war levels. Most of the oil trapped during the war escaped, but that was a singular slug, now digested.
The sanctions exemptions the US briefly granted did not help Iran much, but the temporary lifting of the blockade did allow Iran to send cargoes east. Oil Minister Mohsen Paknejad said his country sold $6.5 billion of oil during the ceasefire, which must have represented the bulk of its stranded 100 million barrels.
The UAE did use the route along the southern coast of the Strait of Hormuz to evacuate more oil, with some American military protection.
Iran did not want to accept losing control of the Strait or seeing global oil stocks refill, while relying on US promises it does not trust. On July 13, it attacked two Adnoc tankers in Omani waters, killing one sailor. Guidance from Lloyd's of London, the key global insurance marketplace, prevents insuring vessels paying anything to use the Iranians’ preferred northern route. Confirmed crude oil transits have dropped by about 75 per cent.
Other Chessboards
This is where moves on other chessboards come in. On July 20, the Houthi forces in Yemen announced a maritime blockade of Saudi Arabia. This is mostly in response to the group’s reignited dispute with Riyadh. But it is undoubtedly helpful to Iran to open another front.
It is not clear what exactly the Houthi ban means. They do not have the same military capabilities as Iran, but still pose a real threat. On Thursday, two Saudi tankers were attacked and one was set on fire. Another tanker suffered minor hull damage on Friday. Some vessels turned around before reaching the Bab Al Mandeb strait, while others sailed through. Two Chinese ships laden with Saudi oil managed to pass, apparently after securing Houthi clearance. And on Friday, the Houthis claimed attacks on Saudi Aramco plants in the key Red Sea refining and port hubs of Yanbu and Jizan.
Since early in the conflict, Saudi Arabia has been using its East-West pipeline to avoid the Strait of Hormuz, exporting nearly 5 million barrels per day from Yanbu. Of this, about 3.7 million barrels head south through Bab Al Mandeb on its way to Asia.
If that route were closed, they would have to divert north. Fully laden very large crude carriers cannot pass the Suez Canal. They have to unload about half of their cargo, pump it through the Sumed pipeline, which runs from Ain Soukhna on the southern end of the canal to Sidi Kerir on the Mediterranean, and then pick it up again.
They would then have to sail around Africa before returning the same way. This would add considerable cost, disruption, time and extra fuel consumption. It would mean about 100 million barrels tied up uselessly on ships. It would also effectively pause Saudi oil deliveries to Asia for about a month.
Supporting military action against the Yemen-based group, or providing shipping escorts, would further tax the US military and its munitions supplies. In the longer term, the Houthi threat casts some doubt on ideas to boost Saudi capacity in the Red Sea and to provide outlets for Qatar and Kuwait.
Events elsewhere
Events outside the region have not improved the US position either. Ever more successful Ukrainian drone attacks on Russian refineries have forced Moscow to stop diesel and petrol exports, and even look to imports. Strikes on the key Novorossiysk loading terminal have also interrupted Kazakhstan’s exports, which flow via Russia. The Central Asian nation has had to cut production by about 500,000 barrels per day, and a full closure of the crucial CPC pipeline could take 1.5 million barrels per day off the market.
Crude oil prices are back above $100 per barrel for the first time since late May. Refined fuels have borne even more of the burden. Wholesale diesel is selling for more than $180 per barrel, and US petrol prices at the pump are back above the psychologically sensitive level of $4 per gallon. And from a political point of view, the crucial mid-term elections are a month closer.
It had been thought that the minimum operational level for the US Strategic Petroleum Reserve was from 250 to 300 million barrels. The stock fell to 311 million barrels as of July 17, dropping at about 5 million barrels weekly recently. The Department of Energy now says the minimum amount is 70 million barrels, but even if true, that could permanently destroy storage capacity as the salt caverns collapse.
China still retains enormous strategic reserves, but it is unclear when it will tap into them. Although the country cut back on imports sharply in June, it will have to return to the market within three to four months at most.
As British historian AJP Taylor wrote of the First World War: “Deadlock, which was expected to promote compromise, really worked against it.”
The war around Hormuz is still far from checkmate for either side. The US still has plenty of pieces – diplomatic, economic and military. But letting the clock run down while repeatedly making wrong moves, or no move at all, or thinking the Iranians have no counter-move, must worry everyone who depends on the result.
