Tensions between Iran and the United States could force the U.S. military to keep up a costly deployment of troops and hardware in the Middle East for years to come to protect oil shipping and Persian Gulf allies, according to a study released Thursday by a Washington think tank and Columbia University.
The report from the Center for a New American Security and Columbia found that Iran’s ability to affect oil prices by disrupting shipping routes and attacking oil facilities in Saudi Arabia or elsewhere has been overestimated. A dramatic spike in oil prices would occur only if the United States and Iran entered into a full-blown conflict, it said.
“Scenarios in which Iran is able to cause damage to the global oil market that lasts years and fundamentally reshapes the environment are highly unlikely,” according to the report, titled “In Dire Straits? Implications of U.S.-Iran tensions for the Global Oil Market.”
But given Iran’s demonstrated ability to hit Saudi oil infrastructure with precision, the U.S. military could be forced to maintain a large force in the region with air and missile defense systems and U.S. naval ships at the ready, the report said. Such a deployment over a period of years would carry a high price tag and derail plans by the Pentagon to shift its focus away from the Middle East to countering China, it said.
“You could have a perpetual, high-level military posture that pretty much kills the idea of shifting over to the Pacific,” said Ilan Goldenberg, one of the report’s three authors and a former senior official in the Obama administration.
“The biggest cost is you lose the ability to project into Asia or defend the homeland.”
A spate of attacks on tankers and on a key oil hub in Saudi Arabia since May already has prompted the U.S. to deploy an additional 14,000 troops to the Middle East, with two squadrons of fighter aircraft, and air and missile defense systems sent to Saudi Arabia.
The U.S. has blamed the attacks on Iran, which Tehran has denied.
Iran’s response to U.S. economic “maximum pressure” has been designed to convey to Washington, Gulf states and the world that America and its allies will pay a price for backing sanctions on Tehran, the report said.
The September attack on Saudi’s oil hub, however, did not cause a sustained rise in oil prices, which jumped initially and then quickly receded.
“More than a month later, oil prices were actually lower than pre-attack levels, showing the resilience of the oil market as well as the difficulty for Iran to actually affect global oil prices,” according to the report.
The report examined three scenarios for possible military conflict between Iran and the U.S., and assessed the potential effect on global oil prices and the broader strategic fallout.
The authors concluded that the most likely scenario was a low-intensity, prolonged conflict in which Iran targets oil tankers and oil facilities in the Gulf, but the two sides stop short of triggering an all-out war.
A second scenario would see Iran stage more severe missile attacks on major oil and energy sites in Saudi Arabia and the United Arab Emirates.
A third scenario would see a major war between Iran and the U.S., with Tehran effectively closing off the strategic Strait of Hormuz, a key oil chokepoint. But that worst-case scenario remained unlikely, as both Washington and Tehran appeared to have little incentive to plunge into a conflict, the report said.
In the case of a low-level, drawn out conflict with Iran targeting oil shipping and facilities, oil prices likely would not spiral upward, but the U.S. would have to commit major resources and military hardware to safeguarding vulnerable oil infrastructure in Saudi Arabia and the UAE., the report said.
“Even in the less escalatory scenarios, which are much more likely, the United States would be forced into long-term deployments of a large number of air and naval assets that would need to remain in the Middle East for years at a cost of billions of dollars,” the authors wrote.
The Sept. 14 attack on Saudi Arabia’s Abqaiq and Khurais oil facilities, which the U.S. and its allies blamed on Iran, was a strategic watershed as it showed Tehran had much more sophisticated military capabilities than previously assessed by outside governments, the report said.
“The fact that Iran was willing to conduct such an attack was a surprise to most analysts and to the U.S. government and its Gulf partners. The level of accuracy it showed in the strike demonstrated a technical proficiency the U.S. government and outside analysts did not believe Iran had,” according to the report.
The study projected estimates of possible oil price rises under more drastic scenarios. If Iran caused major damage to Saudi and UAE oil infrastructure with missile and other attacks, oil prices would likely spike immediately to up to $90-$120 a barrel, but fall back to about $65-$75 within a year, it said.
In the event of a war between the U.S. and Iran with a large-scale bombing campaign by the United States and Tehran closing off the Strait of Hormuz with mines and other tactics, oil prices could jump initially to $175-$200 a barrel. Within one year, the price would likely fall to $80-$100 a barrel, it said.
The report estimated that Iran, by planting mines and other tactics, could effectively close the Strait of Hormuz to oil tankers for up to 10 weeks. The threat to close the strategic waterway “is the closest option Iran has to a nuclear option,” the report said.
Even so, Iran relies on the Strait of Hormuz to export its own oil, and still has “strong incentives” not to employ a tool of last resort, it said. Almost one third of all global oil and petroleum product exports pass through the narrow Strait of Hormuz daily.
The oil price projections in the report were based on a “soft” market that is currently over-supplied, and dominated by concerns of an approaching global recession, along with a belief that a U.S.-Iran war remains a remote possibility, the study said.
However, the authors added one major caveat to their oil price estimates — the unpredictability of President Donald Trump.
The oil market analysis in the report was based on the assumption that Trump would behave in a way similar to previous U.S. presidents, who committed the U.S. to safeguarding global oil shipping lanes. But there’s no guarantee Trump would follow that convention, especially given isolationist sentiments in U.S. politics, the authors wrote.
Another open question is how President Trump would manage the Strategic Petroleum Reserve in a crisis, and whether he would work out a coordinated response with other governments and or use it to extract concessions from them, the report said.
Trump last year withdrew the United States from a nuclear agreement between Iran and world powers. The deal imposed limits on Iran’s nuclear program in return for an easing of economic sanctions. Last May, Iran announced it would begin to walk away from provisions in the agreement restricting the country’s nuclear activities, saying it was not receiving the economic relief promised in the accord.