The ongoing tension between America and Iran is no longer limited to military bases only. This battle is now being fought around the world’s largest commodity market i.e. ‘Crude Oil’. US President Donald Trump has launched a major military attack on Iran’s Kharg Island. In response to this, Iran has started blocking the passage of merchant ships in the Strait of Hormuz. This is a geopolitical earthquake that can break the global supply chain. If this fire flares up further, there may be a huge rise in the prices of crude oil in the international market, which will have a direct impact on inflation.
America’s attack on the ‘heartbeat’ of Iran’s economy
Kharg Island is not just a piece of land, but it is the largest center of Iran’s oil export. Before the recent tension, Iran used to export about 1.7 million (1.7 million) barrels of oil daily and 90 percent of it passed through this Kharg island. Due to its deep water ports it is the most suitable place for large oil tankers.
President Trump has destroyed the military bases of this island, but has deliberately left the oil refineries. This step of Washington is part of a well-thought-out economic diplomacy. America is giving the message that it can eliminate Iran’s biggest source of revenue in a moment. If Kharg’s oil infrastructure is targeted in the future, millions of barrels of crude oil would disappear from the international market every day. This is sure to create chaos in energy markets around the world.
Strait of Hormuz is the ‘chokepoint’ of global trade
On the other hand, Iran has also given a strong response to America’s economic siege. Iran has its eyes on the Strait of Hormuz. This is the narrow sea route through which about 20 percent of the total crude oil requirement of the world passes. Iran is obstructing the movement of oil tankers passing through here, due to which the global energy market has already panicked.
In view of this crisis, America has increased its military intervention. The Pentagon has sent the ‘USS Tripoli’ warship and about 5,000 marine commandos towards the Gulf. Apart from this, another contingent of 2,500 marines is being sent. Market experts believe that the deployment of such a large army is an indication that this war may drag on for a long time. If America tries to capture Kharg Island, then the fire of war will flare up in the Gulf countries, due to which the freight cost and insurance premium of the shipping companies will increase manifold.
Iran played ‘currency’ bet
A new economic problem has also become entangled in this war. Iran is now cornering America not only with weapons but also with trade diplomacy. According to a report in the Economic Times, Iran is considering allowing oil tankers from countries that will trade oil in Chinese currency ‘Yuan’ instead of US dollars to pass through Hormuz safely.
The entire international trade of crude oil is mainly done in dollars. If Iran starts trading in yuan, it would be a major blow to the dominance of the ‘petrodollar’ in addition to defying US sanctions. Apart from this, countries like France, Italy and India are directly negotiating with Iran for their energy security, instead of relying on America. This move by Iran can economically weaken the US-led alliance.
Petrol and diesel prices may go out of control across the world
This whole matter is an alarm bell for the global economy. The looming threat on Kharg Island and the slow speed of ships in Hormuz, both are enough to provoke crude oil prices. If there are attacks on other energy plants in the Gulf region as per Iran’s warning, then the prices of petrol and diesel across the world will go out of control. Due to cost of transportation, there will be a huge rise in the prices of everyday items, which will make it difficult for the central banks (like RBI and Federal Reserve) to control inflation.
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