The classic game of Battleships requires you to guess where your opponent’s ships are located in order to sink them. A more deadly version is playing out in the Strait of Hormuz now. Oil is getting out – but is it enough to pry open Iran’s strangulation?
The combat of words, data and barrels continues. Ships sail through quickly in convoy, under cover of darkness, with transponders turned off.
Tactics for passage and defences for ships will continue to improve. The shuttling and escort operations may have achieved some success.
Major regional companies appear to have established shuttle services recently. Iraq does not have its own fleet, but President Nizar Amidi said on Saturday that Iran would allow “some tankers carrying Iraqi oil [to cross] the Strait of Hormuz”.
US Energy Secretary Chris Wright said the same day that more than 8 million barrels per day of oil were leaving the Strait of Hormuz, in addition to volumes flowing through the bypass pipelines in the UAE and Saudi Arabia. He had stated last week that 9 million bpd were sent out, while Axios reported on Wednesday that the US Navy was helping 10 million bpd to escape.
Mr Wright may indeed, as he suggests, have access to better data than commercial services. But analysts using satellites as well as ship-tracking are sceptical of his numbers. They suggest 4-6 million bpd is more probable, even if individual days might achieve higher amounts.
The story is not only about oil. Liquefied petroleum gas vessels appear to be joining the shuttle trade. Refined products such as fuel oil and naphtha, a light petrochemical feedstock, are beginning to appear. But many other important commodities, such as liquefied natural gas, fertilisers, sulphur, methanol and aluminium, need to flow freely.
Furthermore, there is clearly a concern over how sustainable the US military role is. The army has expended a large part of its precision munitions and missile interceptors. If high-intensity fighting with Iran erupts again, it may struggle to be so effective.
Its aircraft carriers appear overstretched and in need of lengthy recuperation. It has sent the last remaining carrier from East Asia, the George Washington, to the Middle East, leaving it unprepared for any Chinese challenge.
Yet the latest US financial measures are clearly directed against Beijing. Treasury Secretary Scott Bessent has promised to reveal the “toughest Iran sanctions in history” on Monday. On Thursday, US President Donald Trump threatened “tremendous economic consequences” for any country providing economic support to Iran. It could be asked, of course, why these were not tried earlier in the war, or indeed as an alternative to military action.
China is Tehran’s main trading partner, and the only country still buying significant amounts of its oil. Mr Bessent said that, “the Chinese get 50 per cent [of their] energy from inside the Gulf. So it would do them a big service to get with the programme". That might imply sanctioning the Chinese refiners who buy Iranian oil, or the banks who deal with them. Beijing could not kowtow to such economic diktats.
The UAE announced last Tuesday that it was suspending all trade and financial relations with Iran, after it detected two missile launches towards its territory.
The Iranian economy is in poor shape and getting worse. Unemployment is more than 9 per cent; inflation is above 80 per cent; shipborne oil exports are near zero.
But the suffering of ordinary people has not been a decisive factor for the leadership. This has a certain logic: making concessions now will only invite further US coercion, and probably a return to military strikes later on. The idea of impoverishing civilians in the hope that they would rise up successfully against an authoritarian regime did not work in Iran before, nor in Iraq under Saddam Hussein, nor Venezuela, nor Cuba.
If Iran has indeed “lost control” of the Strait of Hormuz, as US officials suggest, it is vulnerable, with its own oil exports continuing to be blockaded. It will have to try something different: a more intense campaign or a change of tactics against ships in the Gulf, or a return to direct strikes against energy sites, pipelines and loading ports.
Pressure works both ways. The US and global economy are not suffering anything close to Iran, but there is also much less appetite to endure hardship. Oil refining labours under great strain because of the simultaneity of the Hormuz disruption and the Ukrainian campaign against Russian refineries.
Crude oil prices remain quite moderate, although they are creeping up. They gained about 6 per cent last week, reaching more than $94 per barrel for Brent, the main global benchmark. But margins for refining that crude oil into diesel, the key industrial and commercial fuel, have reached extraordinary heights, a record $102.2 per barrel. Pre-war, typical margins were about $19.
Undamaged global refineries are running flat-out, with US utilisation rates of 97 per cent. That cannot be sustained forever: essential maintenance, accidents, or hurricanes in the Gulf of Mexico will strike eventually.
China has also responded to the loss of Middle Eastern crude by cutting back refinery runs and oil product exports. What Beijing decides next will be crucial to the direction of oil prices.
Sanctions are not Mr Bessent’s only worry. A renewed and unnecessary trade spat with Canada portends more tariffs and inflationary pressures. Bond markets in developed countries suddenly seem to have woken up to high debt burdens and rising worries over inflation. As US national debt raced above $40 trillion, the dollar has weakened, and 30-year Treasury bond yields reached 5.25 per cent on Friday.
The analogy is not exact, but the situation is reminiscent of the 1956 Suez Crisis, when US economic threats forced indebted Britain and France to withdraw from Egypt and halt their efforts to overthrow Gamal Abdul Nasser, president at the time.
Ironically, that episode followed the successful 1953 coup in Iran, backed by Washington and London, which restored the Shah to power and Iran’s oil industry to western domination. Just as with last year’s “12-Day War” against Iran, and January’s operation to remove Venezuela’s President Maduro, winning one or two bets persuades the gambler to take even greater risks.
The Iranians are guessing where ships are in order to block or attack them. Analysts are trying to find them to gauge the economic impact. The US is talking up its success to reassure markets. This is not a bloodless paper exercise. A more realistic situation report may help diplomacy, not the alternating maximalism from each side that has made peace so hard to find.
