By Anjan Roy
The West Asia war between Iran and US-Israel combine now seems to be converging on the Strait of Hormuz and the price of oil. Three vessels have been hit on the twelfth day of the war by projectiles while approaching the Strait of Hormuz and in the waters nearby, including a Thai cargo vessel.
Iran has threatened not to allow even “a single litre of oil” pass through the Strait of Hormuz. Donald Trump, on the other hand, has said American vessels would escort ships passing through the Strait.
In his desperation to keep the Strait clear, Donald Trump has even urged the global shipping lines to show a bit of guts and cruise through the narrow waters of the Strait. However, all major shipping lines like Maersk or Hapag LLoyd, have stayed far away from these dangerous waters now.
And how can they. When the world insurance market and the re-insurers of Lloyds of London are refusing insurance cover, no shipping line can even think of sailing through the Straits. Bravado alone does not really work.
On top of that Iran has now extended its strategy into an economic warfare as well, stating that financial institutions in the West Asia region and of US allies were a legitimate target for destruction. Financial institutions play a vital role in the West Asian countries like Saudi Arabia, UAE, Qatar and Bahrain, which have global linkages.
An increasing part of the economies of the Gulf states are becoming service oriented and they depend on their global linkages for survival. If these are severed, this becomes an existential crisis.
Donald Trump was working on putting out a picture of stability returning. He was claiming oil price spurt was only a temporary episode, and prices were coming back to their normal levels. In fact, for a while yesterday, it was looking as if the Trump scrip was working out. However, no. Heightened hostilities are again pushing pressures on the global markets.
These new challenges have undone Donald Trump’s plans for smoothening out the severe instability in oil prices, stock markets, and fears of interest rate hikes on government bonds. Oil prices were temporary improving before these began to harden again.
Notwithstanding the words of comfort from Donald Trump, it turned out that America was spreading false rumours about passage through the Strait of Hormuz. While during the day there were claims that the an armed US vessel has already escorted a ship through the Strait, White House later on formally denied the claim.
This worsened the situation, as claims and denials made it clear that so far USA have not been able to force through the Hormuz. It has subsequently claimed that US forces have sunk 16 Iranian mine-laying vessels in these waters. However, it is clear that the Strait has already been heavily mined by Iran in preparation for the assault.
The West Asia war is now turning increasingly into a battle over oil prices. While Donald Trump and US officials are promising to bring oil and gas prices down, the global markets are witnessing high oil prices and fear has gripped oil buyers.
Since the war broke out, price of oil shot to over $100 per barrel before retreating to $90-91 per barrel yesterday. It again rose sharply during the day on Wednesday. The European governments have meanwhile agreed to release from their Strategic Oil reserves to calm down the markets.
The G7 and other major economies have agreed to release 400 million barrels of oil fro their strategic oil reserves into the market which represents almost a third of their total oil reserves. However, despite promises of such huge release prospects, the oil markets did not quieten down. Gas prices are doing even worse as some of the largest gas field in Qatar have all been closed down.
The primary reason the oil markets have not taken the strategic oil releases seriously because of Iran’s determination to shut to the narrow patch of land though which 20% of the global oil movements pass. This is giving a mortal blow to all gesture for bringing stability to oil prices.
Iran has turned increasingly belligerent in its language and actions about the Strait, while the Americans have made wild claims about escorting ships through the Strait. The claims and counterclaims have further added to the fear and confusion than clearing the air of rumours. (IPA Service)
