‘Sabotage’ attacks on Saudi oil tankers put Strait of Hormuz back in spotlight
Saudi Arabia on Monday said two oil tankers were damaged significantly in a “sabotage” attack over the weekend near the Strait of Hormuz, intensifying the spotlight on the waterway — the world’s biggest potential choke point for global crude shipments.
A Norwegian-flagged vessel was also damaged, according to reports. Details surrounding the incident remain unclear, but it comes at a time of already heightened tensions between the U.S. and Iran following Washington’s decision to reimpose sanctions on Tehran. The United Arab Emirates said the alleged attack on Sunday targeted four ships off the coast of the port city of Fujairah, which lies about 85 miles (140 kilometers) south of the Strait of Hormuz.
Gulf officials have declined to name possible suspects, but the U.S. has warned sailors that “Iran or its proxies” could be targeting maritime traffic in the region, the Associated Press reported.
Oil futures CLM9, +1.16% LCON9, +1.35% soared early Monday, with traders citing the attack as a factor for the rally. Crude gave up those gains, however, turning lower as a global equity selloff tied to an escalating tariff battle between Washington and China sent U.S. stocks tumbling, leaving the S&P 500 SPX, -2.41% down 2.6% and the Dow Jones Industrial Average DJIA, -2.38% down by around 700 points at its lowest point on Monday.
Here’s a look at the Strait of Hormuz and why it’s so important to the global crude-oil market.
Where is the Strait of Hormuz?
The Strait of Hormuz is a narrow waterway that links the Persian Gulf with the Gulf of Oman and the Arabian Sea.
At its narrowest point, the waterway is only 21 miles wide, and the width of the shipping lane in either direction is just 2 miles, separated by a two-mile buffer zone.
Why is it important?
Oil tankers carrying crude from ports on the Persian Gulf must pass through the strait. Around 18.5 million barrels a day of crude and refined products moved through it in 2016, nearly a third of all seaborne-traded oil and almost 20% of all oil produced globally, according to the U.S. Energy Information Administration. That makes the Strait of Hormuz the world’s most sensitive oil transportation choke point.
What’s the threat?
Iranian officials last month threatened to interrupt the flow of oil through the strait after the Trump administration said it would end waivers that allow countries to import Iranian oil.
Iranian Foreign Minister Javad Zarif, in early May, said the country had no interest in escalating tensions with the U.S., according to Iranian news agency Tasnim. He said Tehran viewed the Persian Gulf and the Strait of Hormuz as “our lifeline” and wanted them “safe, secure and free for navigation of all countries, including Iran.”
The U.S. last week announced it was sending an aircraft carrier group, bombers and a Patriot antimissile battery to counter what the Trump administration said were “clear indications” that Iran and its proxies were preparing to possibly attack U.S. forces in the region, the AP reported. That’s in addition to the presence of the U.S. Fifth Fleet, which is based in Bahrain.
Could Iran close the strait?
The Fifth Fleet’s presence had already cast doubt on Iran’s ability to close the waterway, analysts said.
The U.S. naval presence would make it extremely difficult for Iran to choke off traffic, “but they could once again engage in provocative military maneuvers—such as having their speedboats harass U.S. vessels,” wrote Helima Croft, global head of commodity strategy at RBC Capital Markets, in a research note last month.
She said a change in the leadership of the Revolutionary Guards, following the U.S. decision to formally declare the IRGC a terrorist organization, “could signal that the Iranian Supreme Leader Ayatollah Khamenei wants to pursue a more muscular response to his adversaries.”