Yesterday, the Joint Ministerial Monitoring Committee (JMMC) of OPEC met to assess the oil market and the impact of the OPEC+ production restraint. The committee commended the “agile and flexible approach” of the OPEC+ countries, but made no specific recommendations beyond continuing to monitor the oil market until the next meeting in June. That JMMC meeting will take place just before the full Ministerial meeting at which the member states will decide whether to continue the current production restraint. The JMMC communique pointed out “critical uncertainties” such as trade negotiations, monetary policy and geopolitical challenges. Among those geopolitical challenges are rising tensions between Iran and the U.S. since the non-renewal of sanctions waivers early this month. The possibility that the two countries could stumble into direct military conflict is rising.
The standoff between the United States and Iran flared over the past two weeks and now appears to have waned a bit in light of President Trump’s remarks that he does not want a war with Iran. However, Washington and Tehran remain on a collision course in terms of policy. In addition each side is also building up and moving military forces in the Persian Gulf/North Arabian Sea/Red Sea area, increasing chances for clashes due to misperceptions or accidents. Finally, Iran appears to be using limited military means through proxies and covert forces to send signals about its capabilities and resolve. These operations could go awry and cause sufficient damage or casualties to lead the U.S. or its partners in the region to strike back, leading to an escalatory spiral. A larger-scale military clash between Iran and the United States would have significant short-and-long term effects on the stability of the region as well as for oil production and export from numerous countries.
It is highly likely that two attacks in the past week were attempts by Iran to signal both its ability and resolve to damage the oil production and export facilities of Saudi Arabia and the UAE. Two drone were used to attack pumping stations on the Trans-Arabian Pipeline. Iranian-backed Houthi rebels claimed credit for the attacks. Four tankers – two Saudi-flagged, one UAE-flagged and one Norwegian-flagged were attacked as they were anchored near Fujairah. No attackers claimed credit, but a reasonable guess would be Iranian Special Forces from the Iranian Revolutionary Guards Corp (the organization that the United States declared a foreign terrorist organization a few weeks back as part of its maximum pressure campaign on Iran). Both attacks were on oil export routes that by-pass the Strait of Hormuz. In other words, Iran could have been demonstrating its ability to attacks these routes as well as its current, robust capability to target tankers passing through the Strait. This ability – to significantly slow or stop shipping through that strategic waterway – is Iran’s greatest point of leverage on the international community. They are only likely to exercise it if they believe that they are faced with a large-scale military attack or economic/political circumstances so desperate that the regime faces overthrow (this latter scenario is highly unlikely even in extreme economic situations).
A military situation that spirals out of control between the United States and Iran will result in significant damage in both Iran and the region. Depending on how the conflict started, the United States would likely strike at, and seek to destroy, much of Iran’s capability to threaten international shipping through the Strait. This would involve sinking much of Iran’s two navies (both the regular and IRGCN), striking at mining and cruise missile facilities as well as command control facilities and air defense for much of the military and across the country. In addition, given the Trump administration’s dissatisfaction with the nuclear agreement, it would also likely strike nuclear and missile-related targets in an attempt to set back Iran’s programs in these areas by years. This would be a campaign that would last weeks if not months. It is highly unlikely that Washington would invade Iran or seek to occupy it. Iran’s war aims would be to create enough damage and economic pain to have other states pressure the U.S. to stop its attacks. It would target U.S. bases and ships in the region to cause the U.S. domestic pain, Saudi and UAE oil production and export infrastructure and tankers to raise international concern, and likely some political leadership targets in Riyadh and/or Abu Dhabi as a signal of seriousness. A war of this sort would not resolve or advance any of the broader political differences between Washington and Tehran or Iran and its neighbors.