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  • Blocking Strait of Hormuz: IHS Exercise Confirms Heritage Analysis

    As is frequently the case, petroleum futures markets are anxious about political instability in the Middle East. Of particular concern is the possibility that efforts to counter or eliminate Iran’s nuclear weapons capability will lead Iran to close the Strait of Hormuz, through which passes about one-fifth of the world’s petroleum.

    The impact of the strait’s closure and how the U.S. and its allies could respond was the subject of a Heritage Foundation Report in 2008 and a recent Special IHS Webcast (may require subscription).

    Modeling roughly similar scenarios, the two exercises offer similar lessons:

    • The Strait of Hormuz is a critical oil-supply bottleneck,
    • Iran probably has the capacity to significantly reduce the flow of petroleum,
    • Petroleum prices would approximately double while a blockade is in effect, and
    • The impacts on income, employment, and petroleum prices would linger beyond the period of a blockade.

    The shipping lanes through the Strait of Hormuz are about six miles wide. With fast attack boats, anti-ship missiles, and mines, Iran has the capability to disrupt nearly all tanker traffic through the strait for weeks or perhaps months. An aggressive allied military response is necessary to limit the disruption.

    Even limiting the disruption to weeks can have major international macroeconomic impacts. Of course, the longer the strait is closed, the greater will be the negative economic impacts.

    In the Heritage analysis, the closure of the strait could more than double the price of crude oil, reduce national income by hundreds of billions of dollars, and eliminate over 1 million jobs.

    In the IHS scenario, oil transportation and production makes full recovery more quickly than in the Heritage scenario. As a result, the economic impacts are less severe, though GDP still drops by over $100 billion for the first year and petroleum prices reach record levels—in excess of $200 per barrel.

    In both scenarios, the impacts on petroleum prices—and associated macroeconomic impacts—would be buffered by a coordinated release of worldwide strategic petroleum reserves. Further, both studies showed that there were no significant economic impacts that lasted more than two years.

    Posted in Featured [slideshow_deploy]

    5 Responses to Blocking Strait of Hormuz: IHS Exercise Confirms Heritage Analysis

    1. Saltire says:

      This is very similar to the Millenium Challenge 2002 exercise. Only the adversary in that exercise was Iraq. http://www.globalsecurity.org/org/news/2002/02090

    2. bullswin says:

      Simple solution since China, India, and Europe are hurt more by closing the straits, let them defend it. The US should focus "war time efforts" on developing North American oil and gas. That means streamlining regulatory and environmental constraints so wells, pipelines, and refineries can be built in months not years. During WW2 thousands of miles of pipe was laid in minimal time due to a sense of common purpose that our foes on the left just don't understand.

    3. zenga says:

      "In both scenarios, the impacts on petroleum prices—and associated macroeconomic impacts—would be buffered by a coordinated release of worldwide strategic petroleum reserves."
      that's assuming there are any reserves left after obama uses them to support his re-election campaign.

    4. Lloyd Scallan says:

      Despite these facts, Obama continued to lie and distort the truth about drilling on our own lands and waters land then rejects the Keystone pipeline. Is there doubt in anyone's mind as to why Obama is doing or not doing what must be done to protect us. It's real simple. Obama is using energy to collapse our economy to drive the American people into socialism.

    5. STEVEN says:

      Let europe lead the way to defend the Strait of Hormuz?
      Everyone is aware, that the only leading europe has done is to failure.
      The European Union is the biggest and latest example!
      Socialism breeds arrogance, apathy,cowardice and poverty.
      We would have to bribe the Chinese and India is too fragmented to of any use.
      The UN has always been militarily inept, impotent and irelevent.
      Unfortunately, I believe it will be left to us again.

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