What might happen if Iran closes the Strait of Hormuz?

Indefinitely or temporarily, both scenarios present uncontrollables your stakeholders must cope with to survive.

The Strait of Hormuz (above center) presents a 2-mile wide passable cataract that can be obstructed a dozen different ways. Photo by USGS

It’s been a few days since the so-called 12-Day War between Israel and Iran seemed to draw tidily to a close. But tensions are far from ended as fragile ceasefires crumble and bargaining chips are spent on both sides in the civilizational conflict geopolitical observers (like me) have been anticipating since Iranian mullahs started calling for “death to Israel” nearly half a century ago.

Among other priorities this summer, my colleagues and I at Aurora WDC are busy training and equipping AI agents to perform various structured analytic techniques based on concepts from our book The Missionary and The Mercenary - Right Questions, Better Future released earlier this year by my brother Derek and me. My assignment is to build and perfect an ensemble of analysis agents to assist interpreting uncontrollables from the macro-environment to reveal the inventory of actions various stakeholders must consider for operational resilience and contingency planning.

So, I decided to ask our prototype Discovery Orchestrator, what might happen if Iran decides to close the Strait? Here’s a screenshot of what I got back in reply:

The full copy of the context response to my original prompt, minus the opening disclaimer, offers a little more color, below. But first, I decided to ask two questions based on duration - temporary versus indefinite closure.

If Iran closes the Strait of Hormuz, here are the likely scenarios under two different durations:

Scenario 1: Temporary Closure

1. Impact on Oil Markets:

   • The Strait of Hormuz is a critical chokepoint for global oil supplies, with approximately 20% of the world's oil trade passing through it. Even a temporary closure would cause immediate spikes in oil prices due to disruptions in supply chains and panic in energy markets.

   • Countries reliant on Gulf oil (such as India, Japan, and certain European states) would scramble to secure alternative supplies.

2. Escalation of Regional Tensions:

   • Any closure would exacerbate tensions between Iran and countries dependent on Gulf oil, likely prompting increased naval deployments by the United States and its allies to ensure freedom of navigation.

   • Iran might face retaliatory economic sanctions or military pressure in response.

3. Political Leverage:

   • Iran might use the temporary closure as a bargaining chip in negotiations related to sanctions relief or nuclear agreements.

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Scenario 2: Indefinite Closure

1. Global Economic Fallout:

   • An indefinite closure would be catastrophic for the global economy. Energy prices would remain elevated for an extended period, destabilizing markets and potentially creating political unrest, particularly in countries heavily reliant on imported oil.

   • Inflationary pressures would ripple internationally, with costs of transportation, manufacturing, and energy-intensive industries skyrocketing.

2. Military Conflict:

   • Indefinite closure could prompt military intervention by the U.S.-led coalition or regional states (such as Saudi Arabia and UAE) to reopen the Strait. Iran’s actions may be viewed as a direct threat to global stability, leading to widespread condemnation and possible military confrontation.

   • Risk of escalation into broader regional warfare that involves proxy forces and economic sabotage beyond the Strait.

3. Regional Alliances and Isolation:

   • Iran might seek alliances with major powers like Russia or China to resist Western pressure, further polarizing global politics. However, continued closure risks isolating Iran on the international stage, even from sympathetic nations.

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Strategic Insights:

Iran’s decision to close the Strait (temporarily or indefinitely) would be influenced by multiple factors:

1. Economic resilience: Whether Iran believes it can withstand sanction impacts from lost revenues.

2. Political objectives: Iran would likely weigh this decision against its long-term strategic and diplomatic goals.

3. Military capability: Iran’s ability to defend any attempted reopening of the Strait.
   
   Iran might use such actions for leverage but would face significant risks, including internal backlash (due to economic hardship) and external military threats.
   
   If you’d like, I can craft this as a LinkedIn-style analysis or delve deeper into historical precedents that inform these scenarios. Let me know!

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Not bad, eh? I’ve seen much worse from much better human macro analysts.

If I had a client doing the asking, of course, I would tailor my prompt to ask about more specific potential strategic responses considering the exigencies that client is coping with. This would assist inventorying a more granular STEEPLED array of contingency control factors specific to their interests. Indeed, no client would need me to do the asking at all once we open these agents up to them, although there are significant gaps in the prototype’s ability to think creatively.

For example, let’s start with the two durations. Indefinite closure would impact the supply of just under 21 million barrels of crude oil daily (20.9 mb/d), much of it bound for markets in Asia. But it’s not just 20% of world oil consumption at risk; those ~21 mb/d represent 40-50% of total exported oil, which would impact worldwide price stability dramatically, not to mention 100% of the LNG exports of Qatar and the UAE, about 20% of LNG trade globally.

Temporary closure also assumes such a scenario hasn’t already happened behind the scenes, at least, to a limited extent. To learn more about what I don’t know I didn’t know, I did what any HUMINT analyst would do and decided to find a subject-matter expert (SME) who could shed some light. A veteran freighter boat captain alluded to what work is like for him these days on the high seas (via YouTube comment thread) and that interference with navigation is already underway, presumably by Iran, although proof is (as usual) hard to come by (sic):

Spoofing and jamming of the GPS signals, also GLONASS and the other satellite navigation systems. Somehow this is almost not mentioned in our media in the European Union. Especially the younger crew had to learn to navigate with "old fashioned" methods like parallel index at the radar screen, and taking bearing and distances from land marks. We don't have paper nautical charts on board anymore. All electronic. I think almost no one could imagine a few years ago that there would be electronic warfare happening at the sea. The same happened in the Strait of Hormuz I've heard from colleagues.

And now we get to the real limits of the commodity energy trade: INSURANCE RISK. Via that same skipper:

I am working 30 years at the sea now, the last 14 years as a ships captain. It is very easy to close the Strait of Hormuz. Even only the threat of shooting at ships is enough. Insurances will spike until astronomical levels. Ships owners don't want to lose ships. And not to forget: the ships captain has an obligation to make decisions independent with the safety of the ship and ship crew in the first place. And the environment. The captain MUST decide independently. If there is disagreement about that between the captain and the ship owners, and the captain has strong arguments, then the captain is protected. It is even the other way around. The captain can have problems if he (or she) decide to pass the Strait of Hormuz, knowing that there is danger for ship, crew, and the environment. No one in his right mind will pass the Strait of Hormuz in such a situation. Furthermore, I give you a small example. The Saimai Lake is a Finnish lake. But the channel to that lake passes Russian territory. The channel is open, no problem. Still, almost no Finnish ships are passing through that channel anymore due to the high insurance costs. Insurances are afraid that ships will be stuck at that lake if Russia decides to stop the access through Russian territory.

There are at least nine (9) different truck-launched ballistic missile systems within range of the Strait controlled by Iran and the mere threat of impeding traffic is enough to spike insurance and the cost of the commodity with it. Our AI agent couldn’t know to ask a real ship’s captain about all this; heck, it couldn’t even differentiate between temporary and indefinite!

But my little prototype Discovery Orchestrator was smart enough to use historical opinions and data to build not half bad scenarios and implications for me to consider as an analyst. And as June now turns into July, I’m looking forward to training my little ensemble to do more and more, better and better.

Merely answering questions is never enough to drive actions that produce results. We must train ourselves to ask more questions than we answer while truly outstanding analysts will always strive to ask questions everybody else is afraid to ask.

I wanted to give you a peek into how that might happen using modern AI-assisted agentic tooling and, with any luck, that’s how I’ll spend the rest of my summer vacation - training agents that can prompt YOU to ask those questions, rather than the other way around.