Opinion |

The War Between the U.S. and Iran Has Begun, in Case You Didn’t Notice

It’s being fought quietly and on Tehran’s terms, which isn’t good news for the oil market or world economy

David Rosenberg
David Rosenberg
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The damaged tanker Andrea Victory, off the Port of Fujairah, United Arab Emirates, May 13, 2019.
The damaged tanker Andrea Victory, off the Port of Fujairah, United Arab Emirates, May 13, 2019.Credit: Satish Kumar Subramani, Reuters
David Rosenberg
David Rosenberg

The first two salvoes in the U.S.-Iran war were fired last week.

If you hadn’t quite noticed, it’s because that how Iran wants to fight the war: quietly and anonymously. The United States and its allies are going to be hard-pressed to find ways to fight back.

It’s a classic David and Goliath conflict, with David armed with drones, limpet mines and cyberwarfare tools while Goliath is weighed down by aircraft carriers and B-52s he hesitates to use.

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The first of these virtual salvoes was the attack on four vessels off the coast of the United Arab Emirates on May 12. The second occurred two days later in a drone attack on a Saudi pipeline.

Naturally Iran hasn't taken responsibility for either incident, but plausible deniability would be just another part of its strategy, designed to keep the U.S. off-balance and the media arguing who was responsible and how to react.

But it’s a pretty safe bet Iran is responsible. The attacks were meant to show that if Iran doesn’t have the political and economic power of the U.S. to impose sanctions, it does have the tools to impose its own kind of “sanctions” on America’s Saudi ally. If the world isn’t going to buy Iranian oil, then it shouldn’t count on Saudi oil as a substitute.

Militarily, Iran is in no position to take on the U.S. or make good on threats to close the Strait of Hormuz, through which close to a third of the world’s oil exports pass. But it can disrupt the production and exports enough to raise oil prices and insurance rates, and perhaps on a lucky day when a mine or a drone or a cyberattack makes a direct hit, to disrupt supply for a while.

Is it safe?

The reason why the back-to-back attacks are unlikely to have been a coincidence or freelance attacks by militants is because the targets were so carefully chosen and laden with warning signals.

The first attack sought to send the obvious message that the tankers plying the Hormuz are not safe. The second was designed to show that alternative route for shipping oil is just as vulnerable. That is because the drone attacks targeted Saudi Arabia’s East-West pipeline, which takes the oil pumped in the eastern part of the country to the west, where it can be shipped out by tankers at the Red Sea port of Jedda. In other words, no Saudi oil exports are safe.

The Saudis would prefer not to take this lying down, but neither they nor the Americans are in a good position to stand up to the Iranians if the oil war is going to be conducted like this on Tehran’s terms.

Saudi oil installations are defended by missile batteries and other big-ticket weaponry. But, as last week’s pipeline attack amply demonstrated, these defenses did nothing to stop a pair of drones from flying 500 miles across the country and hitting their targets undetected.

The Strait of Hormuz and the Persian Gulf are no less vulnerable -- chock-a-block with thousands of small boats that make the work laying mines and leaving undetected easy. The U.S. forces in the area are equipped to fight a conventional war, not an elaborate game of cat and mouse.

Presumably the policymakers in Washington who decided to pressure Iran to the point that a virtual war has erupted are well aware of the risks they were taking. But it seems they’ve decided that it’s worth because it’s someone else’s oil with which they are playing a dangerous game.

The U.S. long ago stopped importing Iranian oil, so sanctions impose no direct cost on the American economy. The U.S. does import Saudi oil, but the amounts have been falling as domestic shale oil production grows and by leaps and bounds. These days the U.S. exports as much oil as it imports, so its petroleum fix can be met no matter what happens in the Gulf.

Most of Europe and Asia, on the other hand, doesn’t have the luxury of serenely watching a virtual war in the Gulf. China, India, Japan and South Korea and much of Western Europe rely on the Gulf oil and, with the full sanctions on Iranian oil kicking in, on Saudi Arabia in particular. They also depend on liquified natural gas from Qatar shipped by tanker through the Hormuz.

In the global oil market, supply is running ahead of demand right now, to the extent that last week’s attacks didn’t send oil prices soaring. Traders apparently think that the market can handle small disruption and perhaps that’s the thinking in the Trump White House.

But the market is in a delicate position: not only is the full weight of the sanctions on Iran now in effect, but production in Venezuela has collapsed due to a mix of government dysfunction and U.S. sanctions. The civil war in Libya could easily disrupt its exports and Nigeria is a cauldron of volatility. The Trump policy of picking multiple, parallel fights with enemies, whether with China, Iran or Venezuela, magnifies the risk.

Even if the U.S. may well positioned to handle a big disruption of the oil market, the rest of the world isn’t and could send a world economy already looking worse for the wear into a downturn. But even in places like the faraway Persian Gulf, “America first” is the order of the day.

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