For the past two weeks Iran has committed a sizable portion of its military to rehearsing how it would go about closing the Hormuz Strait. For the most part, strategic analysts yawned, and declared Iranian blustering to be an empty threat. Judging from the oil markets’ relatively muted reaction, it appears that most of the folks who bet big money on what happens in the Persian Gulf share this opinion. So what is this consensus based on? First and foremost, it relies on the belief that the Iranian leadership will make a number of rational calculations and decisions concerning their own and their country’s future. Personally, I am not sure of the wisdom of betting on the rationality of Mahmoud Ahmadinejad and a few globally disconnected mullahs.
As the “Iran is bluffing” crowd sees it, Iran does not the possess the military wherewithal to close the strait: disrupt traffic, yes; close it, no. Everyone also assumes that Iran’s leaders understand that closing the strait would mean that Iran’s own oil shipments would cease. As Iran’s oil exports account for a almost a fifth of its GDP and fund 60 percent of its national budget, even a temporary closing of the strait would be an economic catastrophe. Moreover, as Iran still relies on imports for much of its refined fuel, any closure of the strait would rapidly shut down huge segments of its non-oil economy.
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