Hormuz crisis: Should China do more to secure global chokepoints?
Even without Iran closing the Hormuz Strait physically, traffic has dropped precipitously causing prices to spike in Asia, says analyst Christian Le Miere. China, one of those heavily affected, may need to do more, with more military power projection, to secure its own interests near the world’s bottlenecks.
The week-long US-Israeli military operations in Iran have caused a region-wide conflict that has seen strikes on 14 countries throughout the region, from Cyprus in the west to Sri Lanka’s coastline in the east.
But for China, and much of East Asia, the most significant impact has been the decline in maritime traffic through the Strait of Hormuz.
The strait, which sits just 39 kilometres wide at its narrowest, is a key chokepoint through which much of the Gulf’s trade transits, including most oil and gas exports. During more normal times, more than 135 vessels pass through the strait every day entering or exiting the Gulf. Over the past week, the average has been fewer than ten.
For many countries in East Asia, reliant on energy imports and particularly oil and gas from the region, the effects are already being felt in higher oil and gas prices. In China, where roughly a half of imported oil and one third of imported liquefied natural gas (LNG) hail from the Gulf, the possibility of a prolonged reduction in Hormuz traffic poses a clear threat to energy security and economic prosperity.
Using a mix of anti-ship cruise missiles, drones and small boat attacks, Iran could target individual vessels, denying access to certain types of ships (most likely tankers), flagged or owned by certain countries (such as Israel or the US).
The open closure of Hormuz
The reduction of traffic in the Strait of Hormuz — a drop of more than 90% — has come despite Iran not officially closing the waterway. In fact, a representative of the Islamic Revolutionary Guard Corps noted on 7 March on Iranian state-run TV that, contrary to speculation, “Iran has not shut down this waterway,” and any closure would be accompanied by an official statement.
Closing the Strait of Hormuz is, in fact, not an easy task. Several options exist for Iran to do so, but none that would easily shut off all traffic in the waterway. One possibility is for Iran to liberally mine the strait, using naval mines to deny large areas of the channel to maritime traffic. The issue with this route is that Iranian vessels would also be impacted. Given that more than 90% of Iranian oil is also exported through the Strait of Hormuz, closing off this passage would cause significant economic self-harm.
Instead of trying to close the strait entirely, a more plausible tactic for Iran would be to close the strait to selective traffic. Using a mix of anti-ship cruise missiles, drones and small boat attacks, Iran could target individual vessels, denying access to certain types of ships (most likely tankers), flagged or owned by certain countries (such as Israel or the US). This would allow vessels from Iran or friendly countries (such as China and Russia) to still transit the strait and keep oil flowing to key clients.
Such a strategy may entice a greater naval presence from the US and allies to offer convoys and security to maritime traffic. But it would also present a target-rich environment for Iranian operations, increasing the proximity and number of naval vessels, as well as providing slow-moving, if well-protected, convoys of tankers.
Despite these options, Iran has not yet had to launch a concerted effort to close the strait. A small number of vessels have been struck throughout the Gulf, with approximately 14 tankers and an oil rig hit. But more effective has been the mere threat of Iranian action, and the uncertainty caused by the conflict has effectively done the job for Tehran.
Spooked by potential losses, maritime insurers have cancelled war risk premiums, leaving vessels effectively uninsured for passage through the strait. Only the most risk-tolerant shipping magnates and captains will now risk a passage through a strait fraught with danger and subject to Iranian GPS jamming. The UK’s Maritime Trade Operations centre in Dubai stated that just one vessel travelled through the strait on 8 March.
No region has been immune from this global effect, but arguably the worst-affected in the short term has been Asia.
Asia bearing the brunt of Strait of Hormuz disruptions
The economic effects of this virtual closure have been felt immediately. Roughly 20% of the world’s supply of oil and LNG passes through the Strait of Hormuz, and removing most of this supply has led to sharp increases in hydrocarbons — crude is up 65% since the conflict started.
No region has been immune from this global effect, but arguably the worst-affected in the short term has been Asia. The energy-hungry economies of the fast-growing region rely heavily on the supply of oil and gas from the Middle East. South Korea relies on traffic through the Strait of Hormuz for approximately 70% of imported oil and 20% of imported LNG. Japan received 75% of oil imports from the region, and Taiwan 60%. Pakistan relies on the Gulf for 99% of its LNG.
China is similarly dependent on the region, and as a result, the government and refinery sector are already reacting to the crisis. On 5 March, Beijing told large-scale refiners to suspend exports of diesel and gasoline, as concerns arose about the longevity of the supply of refined products. Refiners have begun to institute run cuts — Zhejiang Petrochemical brought forward a month-long planned maintenance on 3 March, while Fujian Refining and Petrochemical Corporation closed its smallest unit in early March.
It is not just crude oil and LNG that will be affected. Prices of a range of oil-based products are spiking: Singapore jet fuel prices more than doubled in the wake of the strikes, although have fallen back to about 50% higher; marine gasoil is up more than 60%, and granular urea prices have jumped by a third — the Strait of Hormuz is the conduit for approximately one third of global trade in fertilisers.
While Beijing has deployed only limited military force overseas until now, its gradually growing presence, whether through its naval base in Djibouti or rotational flotilla in the Gulf of Aden, is reflective of this growing concern.
China vulnerable to instability at global chokepoints
For Beijing, the conflict has thus underlined an essential truth. Chinese energy and national security are intimately linked to the world’s maritime chokepoints and the stability of maritime trade. Since the early 2000s, strategic discourse around China has referenced the Malacca dilemma — the fact that China is vulnerable to disruption through the Strait of Malacca owing to its increasing reliance on imported energy and export-led economic model.
Now, the Gulf instability has highlighted that it is not just Malacca that Beijing need be concerned by, but all global maritime chokepoints, from the Strait of Hormuz to Suez, Panama to Gibraltar.
The need to secure these chokepoints and trade flows is an increasingly vital consideration for Chinese strategic planners. While Beijing has deployed only limited military force overseas until now, its gradually growing presence, whether through its naval base in Djibouti or rotational flotilla in the Gulf of Aden, is reflective of this growing concern.
If there is a lesson for Beijing, it may be that it needs to do more, with more military power projection, to ensure it and secure its own interests near the world’s bottlenecks.
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