Likely Results of an Attack on Iran

In recent weeks there has been increased speculation about a potential military attack by Israel on Iran. With Iran seeming to run roughshod over international efforts to curtain its nuclear program, speculation about an attack on Iran by Israel or the US has been one of many factors driving oil prices above $143 per barrel in recent days. Israel has over 500 combat aircraft and three cruise missile submarines capable of launching attacks against Iran. In a recent exercise over the Mediterranean Sea, Israel is alleged to have practiced a raid to take out Iran's growing capability to produce a nuclear weapon. Given Iran's 2.5 million barrels per day in world exports, 4 million barrels per day in total production, arsenal of cruise and ballistic missiles, and its strategic position bordering the Straits of Hormuz, it is worth taking a serious look at the potential impacts of an attack on Iran.

Result # 1: Retaliatory strikes on Israel
Iran has recently made official statements to the effect that any attack on its facilities by Israel will result in retaliatory missile strikes against the Israeli homeland. According to reports, Iran has between 50 and 300 Shihab 3 ballistic missiles capable of reaching Israeli targets. These missiles are capable of delivering conventional high explosive, submunition, chemical, biological, radiological dispersion and potentially nuclear payloads. It is uncertain how effective these attacks would be given a number of Patriot Missile defense batteries surrounding Israel. The Patriot is capable of engaging ballistic missiles and has been improved to destroy large systems like the Shihab. Given Israeli defenses, the likelihood of a successful military attack against Israel using conventional weapons is decidedly low. That said, a chemical, biological, or nuclear weapons attack is much more likely to succeed but would also risk severe reply from Israel which, itself, possesses nuclear weapons.

Result #2: Cessation of oil exports by Iran
Iran has also threatened that, if attacked by Israel, it would stop exporting oil cutting off all its sales to the world market. 2.5 million barrels per day represents barely 3 percent of all world oil production and 6 percent of world exports. But, according to OPEC president Chakib Khelil, it would not be possible for OPEC to replace Iran's contribution to world oil supply. According to Khelil, "It's obvious that if you curtail 4 million barrels per day (bpd) from the market, you are going to have a big problem. I don't see who can replace that, including OPEC." Such an admission is a clear indication that OPEC has little if any spare capacity to cover such a cut-off from Iran. Saudi Arabia holds most of the remaining OPEC, and world, spare capacity. This capacity is estimated to be at between 1.5 million and 2 million barrels per day by both the US and world energy information agencies. Unfortunately, these oils are primarily heavy, high sulfur and otherwise difficult to produce and refine oils. Furthermore, it is estimated that such oil would take at least 90 days to come on stream.

Given a cut off of even Iranian oil supply, it seems likely that world emergency stocks like the US strategic petroleum reserve and products reserves in Europe would likely have to be drawn down to cover any short falls. The US currently holds about 700 million barrels in reserve. So it, alone, could stave off an Iranian export cut for nearly a year if it were to drain away all reserves. Whether this would be wise or desirable given the overall world oil supply situation is another question entirely.

On the Iranian side, cessation of oil exports would be devastating to an economy primarily dependent upon oil for its economy. Past oil disruptions had severe effects on Iranian markets and are certain to have similar impacts if they occur again.

Result #3: Closing the Straits of Hormuz
According to semi-official news reports from source like Fars News Agency, Iran has also threatened to attempt to close the Straits of Hormuz to oil shipping if attacked. According to Fars, Iran's Revolutionary Guard Commander Maj. Gen. Mohammad Ali Jafari, stated "Naturally every country under attack by an enemy uses all its capacity and opportunities to confront the enemy. Iran will definitely act to impose control on the Persian Gulf and Strait of Hormuz." The Straits are one of the most strategic locations in the world as 17 million barrels of oil passes through them each day.

If Iran could, indeed, cut off supply through the Straits, even for only a very short while, the resulting supply disruption would be devastating to world markets. The world exports about 40 million barrels of oil per day. If almost half of that oil was cut off, the world would almost certainly see shortages. US emergency petroleum reserves are enough to cover about 40 days worth of cut-off through the Straits of Hormuz. World reserves might stretch that number to 80 days.

However, given the presence of the US 5th Fleet in the region, Iran is unlikely to achieve a total cut-off of supplies through the Straits without first militarily defeating the 5th fleet. That said, Iran possesses the capability to cause sever problems to shipping if it were to use its arsenal of cruise missiles (estimated by reports to be between 300 and 500 in total) and small boats to attack US naval vessels and tankers passing through the narrow Persian Gulf or even narrower Straits of Hormuz. Iran's arsenal of Silkworm, Sunburn, and Yankhont cruise missiles were cited in a military exercise called The Millennium Challenge Wargames in sinking 16 US naval vessels including one aircraft carrier and two helicopter carriers. The Wargames highlighted US naval vulnerability to cruise missile strikes in the confined waters of the Persian Gulf.

Regardless of Iran's success or failure to close the Straits any prolonged military conflict in the region is likely to result in further disruption to world oil supplies at a time when markets are under historic stress and record high oil prices.

In the end, it is uncertain if current rumors in the media about a planned attack on Iran by Israel are true and that if such an attack is even likely. That said, both Iran's unwillingness to compromise its capacity to produce nuclear material related to nuclear weapons and Israel's sabre rattling do not bode well for the future. If conflict erupts, at the very least expect even higher prices of oil and the potential of shortages if severe disruptions resulting from military conflict occur in the region.