The Persian Gulf is linked to the destiny of energy security and stable oil prices in the global market. The region holds 65% to 75% of proved global petroleum reserves and 35% to 50% of natural gas, exporting 20% of the world’s energy through the Strait of Hormuz. It is clear the developing crisis in the Persian Gulf has the potential to adversely impact the global economy as well as regional and trans-regional security.

Maintaining stability in this region is critical to ensuring the continued supply of oil and gas to many countries. Because of the strategic role played by the Persian Gulf with regard to the global oil industry, every step taken against Iran’s nuclear program makes the stability of the global energy market more tenuous.

Arab countries and war with Iran

Experts on international diplomacy agree that the negative consequences of a crisis in the Persian Gulf would be significant – increased vulnerability of the oil industry, compromised supply, and instability in the price of oil.

The only way to avoid these potentially cataclysmic issues is to avoid a war in Iran. Although the Arab countries in the region have allowed US Navy bases and an American military presence, they have no desire for war because they know if the US or Israel attack Iran, the result could be the loss of billions of dollars invested in the region’s oil industry.

The other countries in the region recognize how much their existence owes to their own oil industry, and without dollars gained through the sale of oil, their governments would be in jeopardy.

Countries in the southern part of the Persian Gulf are facing some complicated issues. While they are working to adapt to the vagaries of a critical relationship between Tehran and Washington, they find themselves between a rock and a hard place. While they are concerned about Iran having access to nuclear weapons, they are loath to see the outbreak of a military conflict in the Persian Gulf. They see themselves as victims of both sides. The fact is, regardless of their misgivings about Iran’s potential nuclear arms, leaders in the region know they cannot stand against their neighbor with impunity. There is a real fear that they will not be able to prevent Iranian missiles from hitting their onshore and offshore oil and gas facilities if they side with the West. They have not forgotten what happened to their oil tankers during the war between Iran and Iraq. A similar event could happen again – and this time on a larger scale.

Arab leaders, unlike their American and Israeli counterparts, have accepted the reality that Iran is a considerable regional player and a powerful neighbor. If Iran were to carry out its threat to blockade the Strait of Hormuz, its neighbors might well be exposed to political and economic instability. Iranian military forces also will consider destroying the industry and infrastructure of any country in the region it perceives as a supporter of US forces.

This perception was reflected in a recent speech delivered by Saudi Arabia’s Prince Turki Al Faisal, the ex-chief of the Intelligence Service Organization, who warned against a military attack on Iran because of the dire regional consequences. Prince Faisal, who is regarded as a highly influential official in Saudi Arabia and one of the trustworthy partners of the US in the region, emphasized that closure of the Strait of Hormuz will bring about dangerous repercussions for the economies of the region because it will disrupt the process of oil transport, following which the price of oil, loading, and insurance rates will increase to an untenable point.

Countries in the Persian Gulf also believe a disruption in supply to the global market could mean a dramatic recasting of their role in supplying the world with energy. The fear is that ultimately capital will be focused elsewhere, perhaps in shale development in North America, where US reserves alone have been estimated at more than 2,000 Tcf. At current consumption rates this is enough natural gas to supply the nation for the next hundred years. The Western world is working diligently to decrease its dependence on Middle East oil, and a threat to reliable delivery will likely lead to redoubled efforts to develop domestic resources.

The effect of the expanding crisis

The impact of closing the Strait of Hormuz would not be confined to the Persian Gulf. Simon Henderson, an expert on Middle East policies at the Washington Institute, believes any type of military involvement in the Persian Gulf will endanger US energy security and raise the price of oil. The fact is that 20% of the world’s required oil passes through this strait, and there is no alternative path for transporting oil out of the region to international markets.

Even if Iran does not close the Strait of Hormuz, it can halt its own oil exports, which would lead to a sharp rise in oil prices. While there has been speculation in the past that Saudi Arabia could make up for the loss of Iranian oil through increased production, it is unlikely that the country will be able to close the gap between global supply and demand.

Today, the Persian Gulf supplies 35% of US oil imports, 56% of the European Union’s, and 80% of Japan’s. This is an important issue because forecasters agree that within a few decades, the world will be even more dependent on Middle East oil than it is today. The International Energy Agency forecasts 30.5% of the oil necessary for the world will pass through the Strait of Hormuz until 2030.

War and the offshore industry

With European and US forces patrolling the southern part of the Persian Gulf, Iran’s Revolutionary Guard Corps has threatened to mine the gulf and to bring its naval power to bear if the country is threatened further. Iran has bolstered its defenses of the Strait Hormuz, creating new defensive lines in the eastern part of the strait.

Iran is the only country in the region with submarines and the wherewithal to use them to demolish oil platforms in the Persian Gulf by means of its long-range torpedoes. Iran also will target oil and gas installations from its underground missile bases. In case of military action, offshore platforms and facilities certainly will be damaged. The result has the potential to be catastrophic from an environmental standpoint.

There will be no guarantee of production in the case of an attack, and no E&D work will take place as long as the conflict continues. Construction in the world’s shipyards will be impacted, and the price of oil will spike dramatically. The human resources issue with which the industry has been contending for decades will become even more of a concern. And the future of the global offshore industry will suffer greatly.

Before this situation becomes extreme, it would be wise for both sides to consider one simple truth – either the Persian Gulf is safe for everyone, or it is safe for no one.

There is unlikely to be an unqualified winner in a war between the West and Iran, but there undoubtedly will be many losers.