Greg Priddy
With President Trump’s decision to launch strikes against Iranian nuclear sites on the evening of June 21 Washington time, Iran now faces difficult decisions about how and where to retaliate. Trump has suggested that the United States was finished with military action if Iran refrains from doing so, but that is unlikely, and it will probably strike US military assets in the region in some manner. Striking energy targets to try to create havoc in global energy markets also is an option, but this is one where there are conflicting pressures on Iran. This could keep their response below that threshold.
Interrupting the flow of oil out of the Gulf in some manner is something Iran is probably capable of doing, and given the relative price inelasticity of oil demand, a large oil disruption event could do significant economic damage to the United States and other importers. This is true despite the United States currently being a net oil exporter. A severe hit to global supplies, even if it did not exhaust the large amount held in commercial and strategic stocks, can be expected to cause a price spike that would tend to strengthen inflationary pressures in the US economy as well as slow down economic activity somewhat, despite having a stimulative effect on US upstream activity.
The dilemma for Iran is that, despite being a very effective means of inflicting some economic pain on average Americans, the interdiction of oil has a number of serious downsides for Iran itself. Shutting down tanker transit through the Strait of Hormuz would cut off Iran’s oil exports, except for the small volume which could move via the port of Jask, outside the strait. It also would involve attacking ships sailing under the flags of neutral countries.
Iran also has markedly improved its relations with several of its Arab neighbors on the other side of the Gulf in recent years, particularly since the Saudi-Iranian agreement on normalization of diplomatic relations in 2023. Several of the Gulf Cooperation Council (GCC) countries have stated in recent months that they would not allow their bases or airspace to be used as part of a strike on Iran. However, all of the GCC countries have US military personnel present, and several host US aircraft, either routinely or on temporary deployment as a result of the current crisis.
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