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Juan Cole for Informed Comment
President Donald J. Trump threatened Friday to destroy Iran’s major oil terminal on Kharg Island if Tehran continued to obstruct shipping through the Strait of Hormuz. He said that the US had already destroyed military installations on the island. The Iranian press reported 15 large explosions on the island.
Some 90% of Iranian petroleum is exported from Kharg, so destroying the facilities there would eliminate its oil exports. Not only does Iran have five terminals on the island, but the Iranian press alleges that other Gulf oil states have facilities there, as well.
Destroying the terminals on Kharg would drive oil prices to $150 a barrel in and of itself, some analysts argue .
Trump’s threat is the most foolish thing he has ever said, which is saying quite a lot. Quite a lot. That is, it is galactically foolish.
In International Relations, this threat is known as a form of “escalation” in the conflict. The recipient of the threat then has two choices, to back down or to escalate further. Where the opponent perceives the threat to be existential, or where they will be put at a serious disadvantage by not responding, they will tend to escalate further rather than withdraw from the fray.
Iran will escalate.
The Iranian Revolutionary Guards Corps responded immediately, “Any attack on its oil and energy infrastructure will lead to retaliatory strikes targeting facilities in the region owned by U.S. oil companies or cooperating with the United States.”
Pretty much all the oil facilities in the Gulf have some American connection, so this would be all of them.
The position of the Iranian government has been for some time that if it cannot export petroleum from the Gulf, then no one else will be allowed to, either. That was the point of Iran’s attack on the Abqaiq oil refinery in Saudi Arabia in September 2019, which took half of Saudi oil off the market for several weeks. That attack came some 14 months after Trump tore up the 2015 nuclear agreement and placed “maximum pressure” sanctions on Iran, reducing its exports to 250,000 barrels a day, down from 1.5 million. After that operation, Iran’s exports gradually went back up to over a million barrels a day, most of it smuggled to China.
Saudi Arabia made peace with Iran via Chinese mediation in March 2023, four years after the Abqaiq attack, deciding better relations with Iran were central to the well-being of Saudi Arabia itself.
So what will happen if Trump follows through on his galactically foolish threat?
Iran, having been deprived of its livelihood at Kharg, will take down the oil facilities of Kuwait, Saudi Arabia, and the UAE. It has the drones and missiles to do so. Oil is, to say the least, flammable. So it can be done. As we saw in Kuwait after the Gulf War, when Iraqi troops set oil rig fires in Kuwait, they are almost impossible to put out in a short time. It takes years. The rigs and terminals would have to be rebuilt. If all Gulf oil is taken off the market for several years, the price of petroleum would go to $200, maybe $300 a barrel and the world economy would be thrown into a long-term recession. It would be a “shock without precedent” .
As Larry C. Johnson points out, “The IMF and World Bank have historically estimated that a $10 per barrel sustained rise in oil prices reduces global GDP growth by around 0.2–0.5 percentage points; a shock ten or twenty times larger would be categorically different in nature.”
The US is already only predicted to grow 0.7 % this year. A hundred dollar a barrel sustained price increase would reduce world economic growth by 2% to 5%. At the upper range of this impact, we’d see another 2020 Covid-era style contraction, when we lost 20 million jobs. And that is just the US. The global pain would be considerable.
Juan Cole is the founder and chief editor of Informed Comment. He is Richard P. Mitchell Distinguished University Professor in the History Department at the University of Michigan He is author of, among many other books, Muhammad: Prophet of Peace amid the Clash of Empires and The Rubaiyat of Omar Khayyam. Follow him on Twitter at @jricole
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