COVER

Khomeini’s grip on a Western lifeline

ARTHUR JOHNSON May 14 1984
COVER

Khomeini’s grip on a Western lifeline

ARTHUR JOHNSON May 14 1984

Khomeini’s grip on a Western lifeline

COVER

The threat is awesome and, if it is ever carried out, the result would be chaotic for most of the world’s oil-importing countries. During its 44month war with Iraq, the Iranian government has said repeatedly that if Baghdad provokes it, it will close the Persian Gulf to shipping. That would cut off 20 per cent of the oil supply to the non-Communist world. And although Japan, the United States and European countries have developed contingency plans to cope with an oil crisis, even a temporary disruption in the Persian Gulf could trigger panic and hoarding, resulting in soaring prices and shortages of gasoline and heating fuel.

Implications: Middle East experts are divided about Iran’s ability to carry out its threat. But even an attempt would have serious implications for North America and other Western oilimporting regions. The oil shocks of the 1970s are still remembered clearly by hundreds of thousands of motorists who had to line up for hours at service stations.

But even more serious is the prospect of the United States being drawn into the Iran-Iraq war. Washington has pledged to intervene should Iran close the Persian Gulf—a commitment that President Ronald Reagan underscored last February.

While the doomsday scenarios of energy shortages and world conflict loom, Western nations and Japan are building up secret oil stockpiles. And owners of the supertankers that haul petroleum from the war zone are paying high insurance rates, which consumers will ultimately have to absorb and which are unprecedented since the 1982 Falkland Islands conflict.

To carry out its threat Iran would have to be capable of keeping oil tankers out of the Strait of Hormuz. That passage, 65 miles across at its widest point, links the Persian Gulf and the Gulf of

Oman. Iran could either place mines in the strait or simply shell tankers as they try to pass through it. But any such action would force Washington to retaliate. A White House source close to the U.S. National Security Council said last week that any attempt by Iran to disrupt shipping would be short-lived. “If they put down mines,” he said, “our

mine-sweepers would soon pick them up. If they started firing at ships with shore artillery, we would accompany the ships and blast them back, with air support if necessary.”

Indeed, there is evidence that the West is deeply concerned about Iran’s threat. As many as 15 U.S. warships now patrol the Arabian Sea near the entrance to the Strait of Hormuz. Britain and France also have frigates and destroyers nearby. Some experts say that the strong Western naval presence would make Iran hesitate before at-

tempting to cut off oil shipments. Shireen Hunter, a Middle East specialist at the Georgetown Center for Strategic and International Studies in Washington, said the U.S. warships are a powerful deterrent to any impulsive moves by Iran. Still, Hunter added that the presence of French, British and U.S. warships indicates that Western leaders feel Iran is entirely unpredictable.

Precautions: Many

other nations share that uncertainty. Saudi Arabia, which exports most of its crude oil through the strait, is taking extraordinary precautions. The Saudis have established floating stockpiles of roughly 50 million barrels of oil in supertankers at sea near Japan and other Far Eastern customers. In the past two years the Saudis have also built a pipeline connecting their oilfields to the Red Sea. The pipeline now carries only 600,000 barrels of oil a day but it can handle 1.6 million barrels daily in an emergency. Japan, which imports two million barrels of oil a day through the Strait of Hormuz, has an emergency stockpile, which would last for 120 days with no additional deliveries. And many European countries require S oil companies to store at 5 least enough oil to last 90 I days.

The United States and Canada import only about two per cent of their oil from the Persian Gulf area, but that is enough to cause major difficulties if a disruption occurred. Said Donald Gunness, a senior adviser at Standard Oil Co. of California: “If tankers are sunk or Iran were to attempt to close the Strait of Hormuz, there is no question it would wreak havoc in the oil markets. I would not be surprised to see oil prices double again under this kind of situation.” For his part, Alfred O. Munk, manager of foreign affairs for Standard Oil Co. of Indiana, declared, “The problem you are looking at is not physical, but psycho-

logical.” Prices would rise because of panic, not because of an actual shortage of supply, he contended. Added Munk: “There is no way you could interrupt supplies from the Persian Gulf long enough to make a significant impact.” Concern: Oil producers and consumers are not alone in their concern. Insurance companies willing to undertake the risks of war are particularly alarmed. Lloyd’s of London, the world’s largest insurance underwriter, has doubled its rates for ship and cargo coverage in the war zone since the beginning of March. To insure a supertanker

and 300,000 tons of crude oil for just two weeks now costs at least $1.2 million, said a major oil insurance broker in New York. And Stanley John, a spokesman for Lloyd’s, said that if the conflict intensifies, the rates will go higher. John said that Lloyd’s now is charging 1.5 per cent of a ship’s insured value for coverage in the Persian Gulf war zone. For cargo the rate is 0.75 per cent of the insured value. Still, Lloyd’s considered the Falklands conflict an even greater risk. Said John: “For about a day and a half or two days we were charging four per cent to insure ships in the Falklands zone.” And motorists and other private consumers have no way to insure themselves against the steep price rises that an Iranian assault on traffic in the strait would almost certainly cause. — ARTHUR JOHNSON, with William LowtherinWashington.