Sanctions and Seizures: Growing uncertainty in the Gulf amid renewed US-Iran tensions

Tensions have been mounting in the Middle East as old adversaries, the US and Iran, trade accusations of endangering regional security in a dangerous game of chicken. In a major manifestation of this escalation, on 12 May, four Saudi, United Arab Emirates (UAE) and Norwegian-owned merchant vessels were targeted in limpet mine explosions off the coast of Fujairah, UAE, in the Gulf of Oman. Four weeks later, on 13 June, two Japanese and Norwegian oil tankers were attacked near the Strait of Hormuz. US officials were quick to accuse Iran for both incidents, with these claims gradually echoed by US allies, Saudi Arabia and the UK. 

More recently, on 13 July, 19 July and 4 August, Iranian naval forces seized three Panama, UK and Iraqi-flagged tankers respectively over allegations of oil smuggling and other maritime violations. Panamanian authorities found the vessel had indeed violated international regulations, and there remain considerable uncertainty regarding the incident involving Iraqi vessel. However, the seizure of the UK vessel is widely believed to be in reprisal for the UK’s seizure of an Iranian tanker offshore Gibraltar on 4 July, for allegedly transporting oil to Syria in violation of international sanctions. 

These developments could have serious consequences for regional security and the global economy.

GEOPOLITICAL CONTEXT: RISING US-IRAN TENSIONS

Since withdrawing from the Joint Comprehensive Plan of Action – the Iran Nuclear Deal – in May 2018, US President Donald Trump has intensified economic and military pressure on Iran, in response to the latter’s nuclear and ballistic missile programmes and Iran’s support for groups in proxy conflicts in Syria, Iraq, Lebanon and Yemen. Over the past six months, the US imposed multiple sanctions on Iran, which severely impacted the Iranian economy, including a substantial decline in oil exports. In early May 2019, the US intensified hostilities by deploying an aircraft carrier strike group, B-52 strategic bombers, and a Patriot anti-air missile battery to the Middle East to deter what it claimed to be “credible threats” from Iran. 

These aggressive moves likely prompted Iran and/or Iran-backed actors to attack the vessels on 12 May and 13 June in the Gulf of Oman. Although there is still no conclusive evidence proving Iranian involvement, the subsequent seizures of merchant vessels demonstrate growing assertiveness on Iran’s part. Iran has previously threatened to block the Strait of Hormuz or disrupt commercial shipping in response to any military actions or sanctions against the country. Iran is likely communicating that it is prepared to disrupt oil export operations in the region, if it is barred from export activities. 

The disagreement between the US and the EU on Iran policy also continues to preclude any diplomatic initiative to deescalate hostilities.

IMPACT ON COMMERCE: SHIPPING AND OIL & GAS 

The incidents involving vessels and associated geopolitical tensions have not reached the level of the ‘Tanker War’ of the 1980s, when 451 vessels were attacked during the Iraq- Iran war. Nevertheless, there have been some negative implications for shipping and oil and gas operations in the Middle East. After the 12 May attack, for example, several companies suspended bunkering operations from Fujairah, and after the 13 June incident, the price of Brent crude surged by 4.5 percent due to concerns regarding supply. A number of large shipping companies also suspended bookings from Gulf oil ports. The price of Brent crude again spiked by 5 percent after Iran shot down the US drone on 20 June. 

As a result of these incidents, Lloyd’s of London’s Joint War Committee extended the list of waters deemed high risk to include Oman, the UAE and the Gulf. The UK has advised UK-flagged ships to avoid the Strait of Hormuz for an interim period, but alternative oil supplies and shipping routes will likely increase costs in most cases. Some ship owners have transferred vessels under UK flags to other countries, but if those vessels have UK or US crew, they could still be targeted. 

One industry that is benefiting from the current instability is maritime security. Private maritime security companies have reported a significant rise in demand from shipping companies for the protection of their crews and vessels in the Arabian Gulf and the Gulf of Oman. This is a welcome development for the industry, which has suffered in recent years due to a decline in piracy off the Horn of Africa. However, there is very little that private security guards can do to deter a powerful state actor. Such a threat is much more difficult to thwart than piracy or other hazards that guards are usually tasked with preventing.

OUTLOOK 

There remains substantial uncertainty regarding the course of the US-Iran dispute. There are hardline US and Iranian officials who appear to be pushing for a military conflict, although President Trump, and certain senior Iranian leaders, are more hesitant. President Trump has sent contradictory messages regarding the US policy, stating he does not seek war with Iran, while also refusing to rule out military action. President Trump likely believes his mixed signals – and the impact of sanctions – will heighten the pressure on the Iranian leadership to make concessions as well as request talks with the US, in a similar approach used to get North Korea’s Kim Jong-un to the negotiating table. Trump hopes that Iran, similar to North Korea, will participate in a grand summit, and by corollary, present Trump as the ultimate dealmaker to the world. 

Nevertheless, the Iranian leadership have ruled out talks thus far, lamenting that the US’s imposition of sanctions have closed the path to diplomacy. In fact, Iran has been gradually reducing compliance with the Nuclear Deal, raising the stakes. There remains considerable uncertainty regarding what President Trump will do if Iran remains defiant. 

Although neither the US nor Iran wants to start a war, there is an increased risk of a miscalculation – wilful or accidental – that could inadvertently trigger an initial military engagement and escalation. Until both countries stop viewing their dispute as a zero-sum game, and commit to some compromises, the shadow of yet another war will continue loom over the Middle East.