The EU has decided on oil sanctions that Tehran has long said would represent a declaration of war. What will follow?

The decision to impose a European Union oil embargo on Iran, agreed on Monday, by European foreign ministers, sets a potential bomb ticking, timed to detonate on July 1.

On that day, according to the measures on the table in Brussels, Europe will stop importing oil from Iran, about a fifth of the country's total exports. At about the same time, U.S. sanctions targeted at the global financing of Iran's oil trade will kick in. Iran could still export some oil to Asia, but at big discounts.

Unlike previous sanctions on Iran, the oil embargo would hit almost all citizens and represent a threat to the regime. Tehran has long said such actions would represent a declaration of war, and there are legal experts in the West who agree.

The threat of an immediate clash appeared to recede over the weekend when the USS Lincoln aircraft carrier and its task force, including the British frigate HMS Argyll, travelled through the Strait of Hormuz without incident. This was despite warnings from the Iranian Islamic Revolutionary Guard Corps (IRGC) that it would oppose the return of a U.S. carrier to the region.

But tensions are almost certain to build again as the effective date of the oil sanctions approaches. The U.S. has already begun beefing up its military presence in the region, and the IRGC is planning naval war games next month.

The Strait of Hormuz is the kink in the hose of the Gulf's oil supply to the world. A small amount of pressure can have a disproportionate effect, sending crude prices soaring and starving the world's oil-dependent economies.

At its narrowest point, the strait is 20 miles wide, but the channels down which more than a third of the world's ocean-borne oil flows — 17m barrels — are just two miles wide in parts.

An Iranian official raising the prospect of closing the strait in retaliation for the threat of sanctions was enough for the world price of crude to rise to $115 a barrel. Maintained over the long term, that is costly enough to strangle any hint of a global economic recovery.

That is what makes Iranian naval action in the Gulf such a potent weapon. But it is a decidedly double-edged one. For, while Saudi Arabia can bypass the strait by pipeline, Iran's oil terminals are west of the choke point — and oil accounts for 60 per cent of its economy.

The U.S. has made clear that interruption to sea traffic in the Gulf would trigger a military response in which Iran's nuclear facilities would be on the target lists. Until now the costs of a war with Iran outweigh the gains of setting the nuclear programme back. But if the U.S. were going to war over oil, that cost-benefit analysis would change.

So closing the strait outright would be — if not suicidal — an exercise in extreme self-harm for Iran. But the choice facing Tehran is not a binary one.

There is a spectrum of options falling well short of total closure; harassment of the oil trade would drive the price of crude up and keep it up, very much to Iran's benefit, but fall short of a casus belli. However, exercising such options requires subtlety and fine judgment on all sides and that is by no means a given.

In a period of sustained high tension, an over-zealous IRGC commander could seize his moment to start a war, or a nervous U.S. captain, seconds from Iran's anti-ship missiles, could just as easily miscalculate. The last time Iran and America played chicken in this stretch of water, in 1988, a missile cruiser shot down an Iranian Airbus, killing 290 civilians including 66 children. There is no doubting the firepower at America's disposal. The Fifth Fleet, whose job it is to patrol the Gulf, is expected to be beefed up from one to two aircraft carriers. Meanwhile, the Pentagon has quietly boosted its army's presence in Kuwait. The Los Angeles Times reported that it now has 15,000 troops there, including two army brigades and a helicopter unit. The U.S. is also bolstered by the naval presence of its British and Gulf allies.

The Iranian military looks puny by comparison but it is powerful enough to do serious damage to commercial shipping. It has three Kilo-class Russian diesel submarines, which are thought to have the capacity to lay mines. And it has a large fleet of mini-submarines and thousands of small boats which can pass undetected until very close. It also has a “martyrdom” tradition that could provide willing suicide attackers.

The Fifth Fleet's greatest concern is that such asymmetric warfare could overpower the sophisticated defences of its ships, particularly in the confines of the Hormuz strait, which is scattered with craggy cove-filled Iranian islands ideal for launching stealth attacks.

In 2002, the U.S. military ran a $250m exercise called Millennium Challenge, pitting the U.S. against an unnamed rogue state with lots of small boats and willing martyr brigades. The rogue state won, or at least was winning when the Pentagon brass shut the exercise down.

In the years since much U.S. naval planning has focussed on how to counter “swarm tactics” — attacks on U.S. ships by scores of boats, hundreds of missiles, suicide bombers and mines, all at once.

One U.S. naval response has been to develop a new kind of fighting vessel, the littoral combat ship (LCS). The LCS is sleek, small and agile with a shallow draft and high speeds, allowing it to operate along island-pocked coastlines. At the low-tech end of the scale, the Fifth Fleet is reported to have deployed dolphins trained to seek out mines.

Ultimately, the U.S. response to swarming will be to use its dominance in the air and multitudes of precision-guided missiles to dramatically wipe out every Iranian missile site, radar, military harbour and jetty on the coast. Almost certainly, the air strikes would also go after command posts and possibly nuclear sites too. There is little doubt of the effectiveness of such a strategy as a deterrent but it also risks turning a naval skirmish into all-out war at short notice.

For that reason, most military analysts argue that if Iran does decide to exact reprisals for oil sanctions, it is likely to follow another route.

Sam Gardiner, a retired U.S. air force colonel who has taught strategy and military operations at the National War College, believes the most likely model will be the “tanker war” between Iran and Iraq from 1984 to 1987. The aim would be to raise insurance premiums and other shipping costs, and so boost oil prices as a way of inflicting pain on the West and replacing revenues lost through the embargo.

“They wouldn't necessarily do anything immediately. If they do what they did in the tanker war, a mine would be hit and it wouldn't be clear how long it had been there. Things like that push up the price of oil,” he said. “The answer is not to escalate. You start protecting tankers and searching for mines.” Even if Iran decides on retaliation, there is no reason for it to be confined to an immediate response in the strait. It could sabotage Arab state oil facilities along the southern shore of the Gulf, or western interests anywhere around the world, months or years after the imposition of an embargo.

Adam Lowther of the U.S. air force's Air University, pointed out recently on the Diplomat blog that Iran's ministry of intelligence and national security (MOIS) is “capable of carrying out assassinations, espionage, and other kinetic attacks against government and civilian targets”. It is also likely to have covert agents in the U.S., Lowther said.

Ehsan Mehrabi, an Iranian journalist specialising in military and strategic issues who recently left the country, wrote on the Inside Iran website: “I recall an Iranian idiom that was popular among the military officials: ‘If we drown, we'll drown everyone with us.' If attacked by a western power, the war would not be contained within the Iranian borders.” Bruce Riedel, a former senior CIA official, said recently: “The Iranians are already superbly placed to make the war in the Afghanistan — which is already difficult — impossible.” All these options are fraught with risks of miscalculation. In the tanker war scenario, maintaining the line between war and peace would be delegated to relatively junior officers, forced to make decisions in a matter of seconds, the exact set of circumstances that led to the 1988 Airbus disaster. Even if Washington and Tehran remain determined to avoid all-out war, with every passing month there is a rising chance of one breaking out by accident.

(Julian Borger is the Guardian's diplomatic editor.) — © Guardian Newspapers Limited, 2012

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