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Iran is reportedly preparing to mine the Strait of Hormuz, a move that would spike global oil prices and give a significant boost to the Russian economy and its war machine in Ukraine.
Reuters reported on July 1 that Iran loaded naval mines onto vessels in the Persian Gulf last month, citing two U.S. officials, who said the preparations had been detected after Israel launched its "preemptive" attack against Iran on June 13.
Amid the conflict with Israel which has currently settled into an uneasy ceasefire, Iran has repeatedly threatened to block the Strait of Hormuz as a means of deterrence.
If the Strait were mined, Iran could block one-fifth of global oil demand and spike world energy prices — a boon for Russia's oil-dependent economy.
"Any disruption to Gulf supplies would push up global crude prices. Prices for Russian crude would rise in line," John Gawthrop, Argus Eurasia Energy editor, told the Kyiv Independent.
Russia’s energy sector made up 35-40% of its budget revenues pre-full-scale invasion and is powering its war machine.
Vaibhav Raghunandan, EU and Russia analyst at the Centre for Research on Energy and Clean Air (CREA), used India as an example of how the closure of the Strait of Hormuz could boost Russia's war coffers.
"If we assume that India completely loses its supply from Iraq, Saudi Arabia and the UAE and — hypothetically speaking — compensates half of this loss with Russian oil, this would mean an additional 4.1 mn tonnes of Russian oil being delivered to India every month," he told the Kyiv Independent.
"This translates to 1.5 billion euros every month, using last month’s average prices for Russian crude exports to India. This will effectively double Russian revenues for a single product from a single country," he added.
Western sanctions on Russian energy and the G7’s Russian oil price cap of $60 per barrel have hampered its profits, with Russia losing more than $150 billion over the last three years, but have yet to deal a crippling blow.
The conflict between Israel and Iran caused a spike in prices — Brent crude, the global benchmark, on June 13 jumped from $69.36 to $75 per barrel, a surge that looked like it could grant Russia's economy a reprieve.
Until the Israeli attacks, the future for Russian crude wasn’t looking so bright. Europe was planning its 18th sanctions package targeting Russia's energy sector, and the G7 was pushing for a $45 price cap. Hungary and Slovakia have since blocked the sanctions package.
Prices have since settled along with the conflict and on July 2 Brent crude was $67.50, but if Iran does go ahead with mining the Strait of Hormuz, blocking one-fifth of global oil demand, another surge would follow.
This would also mean Iran blocks its own oil exports too, so it would only be a last resort from Tehran, David Fyfe, chief economist at Argus Media, a market analyst group, told the Kyiv Independent last month.
Tim Zadorozhnyy
