Kingdoms run on oil

Iran, the U.S. and the Strait of Hormuz Crisis

By George Friedman

The United States reportedly sent a letter to Iran via multiple intermediaries last week warning Tehran that any attempt to close the Strait of Hormuz constituted a red line for Washington. The same week, a chemist associated with Iran's nuclear program was killed in Tehran. In Ankara, Iranian parliamentary speaker Ali Larijani met with Turkish officials and has been floating hints of flexibility in negotiations over Iran's nuclear program.

This week, a routine rotation of U.S. aircraft carriers is taking place in the Middle East, with the potential for three carrier strike groups to be on station in the U.S. Fifth Fleet's area of operations and a fourth carrier strike group based in Japan about a week's transit from the region. Next week, Gen. Michael Dempsey, chairman of the Joint Chiefs of Staff, will travel to Israel to meet with senior Israeli officials. And Iran is scheduling another set of war games in the Persian Gulf for February that will focus on the Islamic Revolutionary Guard Corps' irregular tactics for closing the Strait of Hormuz.

While tensions are escalating in the Persian Gulf, the financial crisis in Europe has continued, with downgrades in France's credit rating the latest blow. Meanwhile, China continued its struggle to maintain exports in the face of economic weakness among its major customers while inflation continued to increase the cost of Chinese exports.

Fundamental changes in how Europe and China work and their long-term consequences represent the major systemic shifts in the international system. In the more immediate future, however, the U.S.-Iranian dynamic has the most serious potential consequences for the world.

The U.S.-Iranian Dynamic

The increasing tensions in the region are not unexpected. As we have argued for some time, the U.S. invasion of Iraq and the subsequent decision to withdraw created a massive power vacuum in Iraq that Iran needed -- and was able -- to fill. Iran and Iraq fought a brutal war in the 1980s that caused about 1 million Iranian casualties, and Iran's fundamental national interest is assuring that no Iraqi regime able to threaten Iranian national security re-emerges. The U.S. invasion and withdrawal from Iraq provided Iran an opportunity to secure its western frontier, one it could not pass on.

If Iran does come to have a dominant influence in Iraq -- and I don't mean Iran turning Iraq into a satellite -- several things follow. Most important, the status of the Arabian Peninsula is subject to change. On paper, Iran has the most substantial conventional military force of any nation in the Persian Gulf. Absent outside players, power on paper is not insignificant. While technologically sophisticated, the military strength of the Arabian Peninsula nations on paper is much smaller, and they lack the Iranian military's ideologically committed manpower.

But Iran's direct military power is more the backdrop than the main engine of Iranian power. It is the strength of Tehran's covert capabilities and influence that makes Iran significant. Iran's covert intelligence capability is quite good. It has spent decades building political alliances by a range of means, and not only by nefarious methods. The Iranians have worked among the Shia, but not exclusively so; they have built a network of influence among a range of classes and religious and ethnic groups. And they have systematically built alliances and relationships with significant figures to counter overt U.S. power. With U.S. military power departing Iraq, Iran's relationships become all the more valuable.

The withdrawal of U.S. forces has had a profound psychological impact on the political elites of the Persian Gulf. Since the decline of British power after World War II, the United States has been the guarantor of the Arabian Peninsula's elites and therefore of the flow of oil from the region. The foundation of that guarantee has been military power, as seen in the response to Iraq's invasion of Kuwait in 1990. The United States still has substantial military power in the Persian Gulf, and its air and naval forces could likely cope with any overt provocation by Iran.

But that's not how the Iranians operate. For all their rhetoric, they are cautious in their policies. This does not mean they are passive. It simply means that they avoid high-risk moves. They will rely on their covert capabilities and relationships. Those relationships now exist in an environment in which many reasonable Arab leaders see a shift in the balance of power, with the United States growing weaker and less predictable in the region and Iran becoming stronger. This provides fertile soil for Iranian allies to pressure regional regimes into accommodations with Iran.

The Syrian Angle

Events in Syria compound this situation. The purported imminent collapse of Syrian President Bashar al Assad's regime in Syria has proved less imminent than many in the West imagined. At the same time, the isolation of the al Assad regime by the West -- and more important, by other Arab countries -- has created a situation where the regime is more dependent than ever on Iran.

Should the al Assad regime -- or the Syrian regime without al Assad -- survive, Iran would therefore enjoy tremendous influence with Syria, as well as with Hezbollah in Lebanon. The current course in Iraq coupled with the survival of an Alawite regime in Syria would create an Iranian sphere of influence stretching from western Afghanistan to the Mediterranean. This would represent a fundamental shift in the regional balance of power and probably would redefine Iranian relations with the Arabian Peninsula. This is obviously in Iran's interest. It is not in the interests of the United States, however.

The United States has sought to head this off via a twofold response. Clandestinely, it has engaged in an active campaign of sabotage and assassination targeting Iran's nuclear efforts. Publicly, it has created a sanctions regime against Iran, most recently targeting Iran's oil exports. However, the latter effort faces many challenges.

Japan, the No. 2 buyer of Iranian crude, has pledged its support but has not outlined concrete plans to reduce its purchases. The Chinese and Indians -- Iran's No. 1 and 3 buyers of crude, respectively -- will continue to buy from Iran despite increased U.S. pressure. In spite of U.S. Treasury Secretary Timothy Geithner's visit last week, the Chinese are not prepared to impose sanctions, and the Russians are not likely to enforce sanctions even if they agreed to them. Turkey is unwilling to create a confrontation with Iran and is trying to remain a vital trade conduit for the Iranians regardless of sanctions. At the same time, while the Europeans seem prepared to participate in harder-hitting sanctions on Iranian oil, they already have delayed action on these sanctions and certainly are in no position politically or otherwise to participate in military action. The European economic crisis is at root a political crisis, so even if the Europeans could add significant military weight, which they generally lack, concerted action of any sort is unlikely.

Neither, for that matter, does the United States have the ability to do much militarily. Invading Iran is out of the question. The mountainous geography of Iran, a nation of about 70 million people, makes direct occupation impossible given available American forces.

Air operations against Iran are an option, but they could not be confined to nuclear facilities. Iran still doesn't have nuclear weapons, and while nuclear weapons would compound the strategic problem, the problem would still exist without them. The center of gravity of Iran's power is the relative strength of its conventional forces in the region. Absent those, Iran would be less capable of wielding covert power, as the psychological matrix would shift.

An air campaign against Iran's conventional forces would play to American military strengths, but it has two problems. First, it would be an extended campaign, one lasting months. Iran's capabilities are large and dispersed, and as seen in Desert Storm and Kosovo against weaker opponents, such operations take a long time and are not guaranteed to be effective. Second, the Iranians have counters. One, of course, is the Strait of Hormuz. The second is the use of its special operations forces and allies in and out of the region to conduct terrorist attacks. An extended air campaign coupled with terrorist attacks could increase distrust of American power rather than increase it among U.S. allies, to say nothing of the question of whether Washington could sustain political support in a coalition or within the United States itself.

The Covert Option

The United States and Israel both have covert options as well. They have networks of influence in the region and highly capable covert forces, which they have said publicly that they would use to limit Iran's acquisition of nuclear weapons without resorting to overt force. We assume, though we lack evidence, that the assassination of the Iranian chemist associated with the country's nuclear program last week was either a U.S. or Israeli operation or some combination of the two. Not only did it eliminate a scientist, it also bred insecurity and morale problems among those working on the program. It also signaled the region that the United States and Israel have options inside Iran.

The U.S. desire to support an Iranian anti-government movement generally has failed. Tehran showed in 2009 that it could suppress demonstrations, and it was obvious that the demonstrators did not have the widespread support needed to overcome such repression. Though the United States has sought to support internal dissidents in Iran since 1979, it has not succeeded in producing a meaningful threat to the clerical regime. Therefore, covert operations are being aimed directly at the nuclear program with the hope that successes there might ripple through other, more immediately significant sectors.

As we have long argued, the Iranians already have a "nuclear option," namely, the prospect of blockading the Strait of Hormuz, through which roughly 35 percent of seaborne crude and 20 percent of the world's traded oil passes daily. Doing so would hurt them, too, of course. But failing to deter an air or covert campaign, they might choose to close off the strait. Temporarily disrupting the flow of oil, even intermittently, could rapidly create a global economic crisis given the fragility of the world economy.

The United States does not want to see that. Washington will be extremely cautious in its actions unless it can act with a high degree of assurance that it can prevent such a disruption, something difficult to guarantee. It also will restrain Israel, which might have the ability to strike at a few nuclear facilities but lacks the force to completely eliminate the program much less target Iran's conventional capability and manage the consequences of that strike in the Strait of Hormuz. Only the United States could do all that, and given the possible consequences, it will be loathe to attempt it.

The United States continues, therefore, with sanctions and covert actions while Iran continues building its covert power in Iraq and in the region. Each will try to convince the region that its power will be supreme in a year. The region is skeptical of both, but will have to live with one of the two, or with an ongoing test of wills -- an unnerving prospect. Each side is seeking to magnify its power for psychological effect without crossing a red line that prompts the other to take extreme measures. Iran signals its willingness to attempt to close Hormuz and its development of nuclear weapons, but it doesn't cross the line to actually closing the strait or detonating a nuclear device. The United States pressures Iran and moves forces around, but it doesn't cross the red line of commencing military actions. Thus, each avoids triggering unacceptable actions by the other.

The problem for the United States is that the status quo ultimately works against it. If al Assad survives and if the situation in Iraq proceeds as it has been proceeding, then Iran is creating a reality that will define the region. The United States does not have a broad and effective coalition, and certainly not one that would rally in the event of war. It has only Israel, and Israel is as uneasy with direct military action as the United States is. It does not want to see a failed attack and it does not want to see more instability in the Arab world. For all its rhetoric, Israel has a weak hand to play. The only virtue of the American hand is that it is stronger -- but only relatively speaking.

For the United States, preventing the expansion of an Iranian sphere of influence is a primary concern. Iraq is going to be a difficult arena to stop Iran's expansion. Syria therefore is key at present. Al Assad appears weak, and his replacement by a Sunni government would limit -- but not destroy -- any Iranian sphere of influence. It would be a reversal for Iran, and the United States badly needs to apply one. But the problem is that the United States cannot be seen as the direct agent of regime change in Syria, and al Assad is not as weak as has been claimed. Even so, Syria is where the United States can work to block Iran without crossing Iran's red lines.

The normal outcome of a situation like this one, in which neither Iran nor the United States can afford to cross the other's red lines since the consequences would be too great for each, would be some sort of negotiation toward a longer-term accommodation. Ideology aside -- and the United States negotiating with the "Axis of Evil" or Iran with the "Great Satan" would be tough sells to their respective domestic audiences -- the problem with this is that it is difficult to see what each has to offer the other. What Iran wants -- a dominant position in the region and a redefinition of how oil revenues are allocated and distributed -- would make the United States dependent on Iran. What the United States wants -- an Iran that does not build a sphere of influence but instead remains within its borders -- would cost Iran a historic opportunity to assert its longstanding claims.

We find ourselves in a situation in which neither side wants to force the other into extreme steps and neither side is in a position to enter into broader accommodations. And that's what makes the situation dangerous. When fundamental issues are at stake, each side is in a position to profoundly harm the other if pressed, and neither side is in a position to negotiate a broad settlement, a long game of chess ensues. And in that game of chess, the possibilities of miscalculation, of a bluff that the other side mistakes for an action, are very real.

Europe and China are redefining the way the world works. But kingdoms run on oil, as someone once said, and a lot of oil comes through Hormuz. Iran may or may not be able to close the strait, and that reshapes Europe and China. The New Year thus begins where we expected: at the Strait of Hormuz