View from London: Iran holds the trump card in this crisis

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All Tehran must do is survive for another few months and wait for the oil crunch to really bite, ‘The Telegraph’ notes.

Every day that the showdown continues in the Gulf, the world is deprived of an eighth of its oil supply and must draw deeper into its vanishing inventories.

“The scale of the challenge has not been well understood: as of today, we are losing 13 million barrels per day and tomorrow it may be bigger,” said Fatih Birol, the head of the International Energy Agency.

Donald Trump launched this war with inadequate forces based on Israeli assurances – deemed “farcical” by his own CIA chief – that Iran would crumble at the first shock.

Tehran warns it will expand the war to the Red Sea route if its ships are attacked or sunk, endangering another six million barrels a day at the Saudi terminal of Yanbu and causing wider havoc to global container shipping.

“The ports of the Gulf are either for everyone or for no one,” it said.

US and Iran are drifting into a familiar and dangerous pattern

US Central Command says shipping from non-Iranian ports in the Gulf can move freely, but it has no credible way to restore normal traffic. It would take at least 200,000 US ground troops and months of fighting to secure the long Iranian coastline and knock out the remaining missile launchers and drone units hidden in the mountains.

“The US and Iran are drifting into a familiar and dangerous pattern: a war of attrition where each side believes it can impose more pain than it can absorb,” said Danny Citrinowicz, a former head of the Iran desk of Israel Defense Intelligence.

The second dangerous twist to this blockade is that the US navy is now expected to board and seize Chinese-flagged ships, constituting a direct attack on China’s energy supply chain. This is arguably an act of war – “the law of the jungle”, as Xi Jinping put it.

“We will never allow any foreign force to bully, oppress or subjugate us. Anyone who would attempt to do so will find themselves on collision force with a great wall of steel forged by over 1.4 billion Chinese people,” he said.

The world market for physical oil is already under extreme stress. The actual price for delivery in Europe today – “dated Brent FOB Northern Europe” – is trading at $145 to $150, a record premium over paper futures.

The last pre-war shipments are arriving in Europe, if they have not already been sucked away by desperate Asian buyers willing to pay higher prices.

The World is waiting for the deficit in global oil supply

Citrinowicz said Trump had yet to grasp the critical fact that the IRGC thinks it has the upper hand in its asymmetric war of guerrilla resistance. That failure of emotional intelligence is a recipe for negotiating trouble.

“What is striking is that even after five weeks of intense fighting, the administration still seems to misunderstand a fundamental point: Iran is not Venezuela. Closing the Strait of Hormuz will not force Iran into submission,” he said.

All that the IRGC has to do is to survive for another two or three months and wait for the deficit in global oil supply to collide with the US summer driving season.

Iran is in grave economic trouble but that is academic at this point. The regime has just earned windfall export revenues from the oil price spike and from Trump’s earlier and opposite policy of waiving sanctions. The country is not starving. It has land access to relatively friendly countries: Turkey, Pakistan and, indirectly, Russia and Kazakhstan.

“Enjoy the current pump figures, soon you’ll be nostalgic for $4-$5 gas”

The emergency release of stocks by the IEA is running thin. The US strategic petroleum reserve is nearing levels of depletion that risk damaging the salt caverns.

“Enjoy the current pump figures, soon you’ll be nostalgic for $4-$5 gas,” taunted Mohammad Ghalibaf, Iran’s chief negotiator and president of the country’s parliament.

The rule of thumb is that every $10 rise in oil pushes up US petrol prices by 30 cents a gallon. The average retail price is currently $4.12. The current physical price of oil in Europe already implies almost $6 petrol in the US once the global market adjusts in the coming weeks.

It is not hard to imagine $8 and 1970s petrol rationing in time for the mid-term elections if the Iranians prove intractable.

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