Strait of Hormuz blockade hurts Iran’s economy, threatens to spike energy prices

The U.S. blockade on the Strait of Hormuz has effectively shut down trade to and from Iran’s ports, cutting off an estimated 90 percent of the Middle Eastern country’s economy as the Trump administration looks to get Tehran back to the negotiating table, according to military officials.

But the blockade, while already putting pressure on Tehran to continue with peace talks, is also likely to drive up U.S. energy prices if it remains in place beyond a few days. What’s more, it’s unclear how long Tehran will hold out and refuse to make painful concessions.

“It’s hard for it not to have an impact on them,” retired Vice Adm. Kevin Donegan, a former commander of the Navy’s Fifth Fleet — the naval arm responsible for operations across the Middle East — said of the blockade on Iran. “But remember, the Iranian regime cares less about the suffering that may be felt by their people. … Their ability to just say, ‘Okay, we’re going to let this keep going, because we think we can outlast the Americans,’ is unknown for how long.”

Washington’s blockade in the strait, which began Monday, has so far caused 13 ships to make “the wise choice of turning around,” Joint Chiefs of Staff Chair Gen. Dan Caine told reporters at the Pentagon Thursday. He warned that should vessels not comply with the blockade, “we will use force,” including boarding such ships.

Caine said American forces are monitoring the Iranian coastline and ports and will “actively pursue any Iranian-flagged vessel or any vessel attempting to provide material support to Iran.” This includes “dark fleet vessels carrying Iranian oil” he said — referring to the ships evading international regulations, sanctions or insurance requirements — and noted that U.S. forces would pursue such boats in other areas of the world, including the Pacific.

The top military adviser laid out the most detailed description of the U.S. mission thus far, comparing Navy ships maintaining the blockade to “like driving a sports car through a supermarket parking lot on a pay day weekend.”

Such maneuvers are being performed “with thousands of kids in that parking lot” as Navy vessels attempt to get to ships that would attempt to run the blockade.

And instead of placing Navy warships along the Iranian coast or close to its ports, the U.S. military has set up shop well out into the Gulf of Oman, monitoring some 18 ports with intelligence and surveillance and interjecting vessels trying to get in and out of the vital shipping lane.

President Trump later on Thursday praised the blockade as “incredible,” and said Iran is “unable to do any business” because of the effort.

Nearly seven weeks into a war with Iran, the U.S. has no clear offramp for the conflict after talks between the two countries last week ended with no resolution. Trump has now turned to an oil blockade to get the results he wants.

An estimated 90 percent of Iran’s economy is fueled by international trade by sea, which U.S. forces completely halted in less than 36 hours since the blockade was implemented, U.S. Central Command head Adm. Brad Cooper said in a statement on social media Wednesday.

Before this blockade, Iran was pushing out roughly 1.5 million barrels of oil per day in addition to about $340 million in seaborne trade, movement that has all but been completely halted. 

Given that, “what we’ve seen, pretty much is working” on putting the economic squeeze on Tehran, said Donegan, now the Middle East Institute’s distinguished military fellow.

“Now, does that mean some ship didn’t sneak out here and there? I can’t tell you that, but blockades don’t have to be 100 percent effective,” he added. “This one, though, is pretty locked in.”

The longer the blockade goes on, however, the higher prices could go at the gas pump given the oil market was already stressed since early March due to Tehran’s blockade on the strait.

Joel Rayburn, a Middle East expert with the Hudson Institute, described the blockade as a “killer for Iranian trade and their revenue stream,” given they can’t export in the same capacity across land borders.

“They don’t have the capacity or the trade relationships to truck that kind of oil across land borders,” Rayburn told The Hill. “And beyond that, how do they import just across land borders with Pakistan or Iraq? That’s not a replacement for being able to import by sea in their ports.” 

He added: “You cut off the maritime route for them, you’re really cutting off their only source of importing and exporting. … I can’t see how they keep going for much longer” before financial collapse.

Others aren’t so sure. 

“The ‘blockade of a blockade’ strategy cooked up by the Trump administration will not work,” according to the think-tank Defense Priorities, which advocates for more restrained U.S. foreign policy. “While Washington is betting that Iran will suffer from lost revenues, the Iranians have far more resolve than the U.S. because the war is existential for them.”

Donegan said it’s hard to measure how long Iran is willing to hold out, but that any economic pressure the blockade puts on Tehran will have to be paired with diplomacy as “the military tool in of itself isn’t going to get you to an end state.”

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