Iran's best weapon in the new tanker wars against the US and UK is looking more and more like a dud

Iran NavyREUTERS/Fars News/Hamed Jafarnejad

  • Iran has engaged in a gunboat showdown with the US and UK, but its main weapon in its fight against the West may be a total dud, US Secretary of Energy Rick Perry said Monday.
  • Perry said Iran can't raise oil prices that much even if it is able to shut down a key passage for oil tankers out of the Middle East.
  • Industry analysts said the old way of thinking about oil price as a proxy for Middle East tensions may be dead, and that something like a hurricane in the Gulf of Mexico could hit the US harder than Iranian military action.
  • Visit Business Insider's homepage for more stories.

Iran has engaged in a gunboat showdown with the US and UK, but its main weapon in its fight against the West may be a total dud, a top Trump administration official said Monday.

Since the US withdrew from the Joint Comprehensive Plan of Action, better known as the Iran deal, Tehran has seen its economy and currency collapse.

Iran's best weapon against the US in this fight won't be its naval forces, which have mainly been small boats facing off against unarmed merchant ships. Several experts have told Business Insider that Iran doesn't pose a serious threat to the US Navy or military.

Instead, Iran has leaned on its ability to raise global oil prices and make the West feel the strain that many Iranians have come to know under harsh, US-imposed sanctions.

But according to US Secretary of Energy Rick Perry, that weapon is a dud.

"I am concerned about it," Perry said on Monday, referencing a small 2% bump in oil prices after the British ship's capture last Friday. "But we find ourselves in a completely different situation than we were a decade ago."

"New suppliers should help keep a steady supply of fuel - whether it's crude, natural gas or other secondary products. I think you will see less displacement of the market when there is an event like we see happening," he continued.

"The Iranians will have a more difficult time in influencing the market than they would have 10 years ago," said Perry.

Tanker fight

FILE PHOTO: An oil tanker is seen after it was attacked at the Gulf of Oman, in waters between Gulf Arab states and Iran, June 13, 2019. ISNA/Handout via REUTERSAn oil tanker is seen after it was attacked at the Gulf of OmanReuters

In the 1980s, the US fought a war over tankers in the Strait of Hormuz as the world desperately depended on the free flow of oil there. But thirty years later, the US is the world's biggest producer of hydrocarbons, and gets much of its supply from the Gulf of Mexico, not the Gulf of Oman.

Iran held up its end of the deal until recently, when it blew caps on enriching uranium, but demanded it get the sanctions relief the US and others had promised it in 2015.

Without the inflow of cash Iran had come to expect, the country turned to violence, threatening to shut down shipping in the Strait of Hormuz, a tiny stretch of water between Iran and Oman that sees 20% of the world's oil supply passing through.

First, Iran threatened with words. Then ships started getting mined. Then oil tankers began getting harassed by Iranian vessels. Now a US drone has been shot down and a UK-owned tanker has been taken with its international crew detained in Iran.

The UK called on Monday for a European coalition of ships to protect tankers in the vital waterway, and the US has also called for international cooperation in policing the waters against Iran.

Broken barometer

oil price markets insiderMarkets Insider

"What I find amazing is oil has become a broken barometer for Mideast conflict," Helima Croft, head of global commodities strategy at RBC told CNBC. "A few years ago, you could almost gauge how serious a security crisis was because of the oil price."

But today, with unprecedented tensions between the US and Iran, oil hasn't gone up or down very much. Unlike the 1970s and 1980s where oil price became a potent political force as US consumers directly feel the strain at the pump, it's largely a non issue.

One group of analysts said that hurricanes could hit the US's oil supply as hard as Iran.

"On supply, effects of oil and gas supply disruptions in the US Gulf of Mexico could rival that of the Strait of Hormuz in the Persian Gulf. As the US becomes the largest hydrocarbon exporter, its hurricane season should reassert its impacts on global oil and gas prices," Citigroup analysts wrote in a note over the weekend.

While the spreading US-Iranian tensions represent a failure of a diplomatic initiative and some human tragedies, including the fate of the crew of the seized UK-owned ship, and the 17 Iranians Tehran says may face death for spying for the US, it's yet to hit the US where it hurts.

Get the latest Oil WTI price here.

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