The Escalating Crisis at the Strait of Hormuz

0:04Jared Malsin:Breaking news now in the war with Iran. Iran's new supreme leader, Ayatollah Mataba-Hemeni, has issued his first statement. Today, Iran released a statement that it said was from its new supreme leader, saying that the Strait of Hormuz must remain closed. So a defiant statement there read out by a TV presenter, because as you mentioned, of course, we still have not seen him. The message marks 10 days since Iran threatened to attack any ship trying to cross the strait, which is a critical shipping route for oil internationally.

0:36Jessica Mendoza:This is the largest oil supply disruption in history, meaning it is causing a global economic disruption that will likely be felt for some time.

0:48Jared Malsin:Our colleague Jared Melson is a Middle East correspondent for The Wall Street Journal.

0:53Jessica Mendoza:The Strait of Hormuz usually handles about one fifth of the world's oil. That has contributed to a surge in oil prices worldwide, which pushed past$100 a barrel this week. And that's going to have all kinds of knock-on effects in terms of the price of gas in the U.S. and all over the world. So there are all kinds of second and third order economic effects that are going to happen as a result of this.

1:20Jared Malsin:So incredibly far-reaching consequences, all focused on this one kind of body of water.

1:26Jessica Mendoza:Exactly.

1:29Jared Malsin:Why is Iran doing this? Why is it so focused on the Strait of Hormuz?

1:34Jessica Mendoza:So Iran is doing this because it cannot defend itself in a conventional sense against the Israeli and U.S. attack that is going on right now. They are by far the militarily weaker party in this conflict. And so what they're doing instead is, in retaliation for the U.S. and Israeli bombing campaign, they are trying to impose economic costs on the U.S., on the West in general, and on the world at large.

2:02Jared Malsin:Is there any sign that the Strait is going to be safe for passage anytime soon?

2:07Jessica Mendoza:In a word, no. What we're reporting is that the United States and its partners have no viable way of reopening the Strait of Hormuz while there is an active conflict going on.

2:21Jared Malsin:Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Thursday, March 12th.

2:34Jared Malsin:Coming up on the show, why it's so hard to reopen the Strait of Hormuz.

2:47Jared Malsin:This episode of The Journal is presented by Intuit Enterprise Suite. If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite. The AI native ERP is here. from the makers of QuickBooks. Learn more at intuit.com slash ERP. This episode is brought to you by Alexa Plus. Say hello to Alexa Plus and see how Alexa can do more for you. Need tickets to that last minute show? Craving your favorite restaurant? Sit back, relax, and talk naturally.

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3:51Jared Malsin:If you're trying to get through the Strait of Hormuz today, what obstacles would you be facing?

3:57Jessica Mendoza:So the Strait of Hormuz is a narrow body of water between 20 and 25 miles across. And the Iranians have explicitly said that any ships going through there could be struck with drone and missile strikes. And what we've seen is the Iranians attack a series of ships. Iran attacking the flow of Mideast oil. At least six ships targeted in the last 24 hours. There were a couple more today in the last 24 hours near Iraq, where you have these very dramatic images of ships at sea on fire. A Thai cargo ship attacked, three crew missing. one of three vessels struck trying to enter the Strait of Hormuz. And so the Iranians have already struck a series of commercial ships, and they are signaling that anyone who tries to run the strait will be attacked.

4:49Jessica Mendoza:Iran pledged it won't hold back. We will never allow even a single liter of oil to pass through the Strait of Hormuz for the benefit of the United States, the Zionists, or their partners.

5:05Jared Malsin:And Iran has a number of weapons it can use against vessels trying to cross the strait. Among them, drones.

5:12Jessica Mendoza:They've used very effectively these one-way attack drones. One of those drones is called the Shahid. It's sort of world-famous now because they exported them to Russia, who used them very effectively. In the war in Ukraine, sending these kind of swarms of drones that are very hard to defend against. They fly at a low altitude, and in general, these pose a threat to civilian shipping. It's just very hard to defend against them. And for civilian oil tankers, they're civilian ships. They're commercial ships that are not set up to defend themselves.

5:47Jared Malsin:Another deadly weapon Iran could use are naval mines, mines deployed under the water, which Iran is saying they're planting in the Strait of Hormuz.

5:56Jessica Mendoza:They have a huge stockpile of them, according to military analysts, and they're obviously hard to detect. They're objects that lurk under the water there, and as a result, de facto, it would pose a huge threat to shipping if the Iranians deploy even a small number of them. It would only take one mine hitting one ship for that to cause a huge disaster, both environmentally, economically, and otherwise.

6:25Jared Malsin:The White House has said that the U.S. has destroyed many ships in Iran's Navy already. Does the country have other vessels that the U.S. hasn't yet destroyed?

6:34Jessica Mendoza:That's right. So the Americans have obviously gone on the offensive against the Iranian Navy, sinking something like 60 of their ships. What we understand is that those are mostly the larger ships in the Navy, and it doesn't include this so-called mosquito fleet of smaller, fast attack ships that the Iranians have.

6:55Jared Malsin:Mosquito fleets, drones, close-range missiles. While they're not as sophisticated as what the U.S. has in its arsenal, they're all nimble technologies that can have an outsized impact.

7:06Jessica Mendoza:It's part of this question of the, like, sort of asymmetric economics of this war, where the Iranians can use these smaller, cheaper weapons to cause a lot of damage. And their whole strategy is predicated on this idea of imposing costs on the other side. The aerial drones cost somewhere in the range of tens of thousands of dollars. The Trump administration is using multi-million dollar air defenses in some cases to shoot them down or try to shoot them down. Same with these small boats. It only takes one to blow up an oil tanker. You can see these images of ships on fire in the Persian Gulf right now as we speak.

7:48Jessica Mendoza:It only takes one of those images to cause panic and anxiety in the oil markets and to scare away shipping lines, oil companies and governments in the region from even attempting to send oil through the strait.

8:04Jared Malsin:One potential answer is sending the U.S. Navy to escort ships as they cross the strait. That's something President Trump has brought up as recently as Monday. But when the time comes, the U.S. Navy and its partners will escort tankers through the strait if needed. But it hasn't happened yet.

8:21Jessica Mendoza:What we understand from our reporting is that the military and the Department of Defense are not planning to do it right now as long as there's an active conflict going on. What we've been hearing from our sources is that it's just too dangerous. sending the U.S. Navy or an allied Navy to escort these ships would be putting them in harm's way. And it would just be very, very difficult to keep these convoys of ships safe. Right now, the U.S. Navy has a lot of its ships and other assets tied up in those strikes. It would have to divert some of those ships for this purpose. And what we understand from defense officials and analysts is that it might even take multiple military ships for each civilian ship just to keep them safe.

9:10Jessica Mendoza:They would have potentially seconds to respond to incoming fire from Iran, which is why they're just not going to try it right now.

9:17Jared Malsin:So if U.S. Navy escorts aren't a feasible option right now, what others are there for ships that need to cross while the war is ongoing?

9:26Jessica Mendoza:There's a few daredevil shippers where they're willing to adopt the risk and try to run through the strait. But for the most part, they're just sitting it out. What we have heard from everyone who is following this situation, oil analysts, shipping industry people, military analysts, is that there's really only two options. It's either these military convoys or a ceasefire. And for a full resumption of normal traffic, meaning more than 100 ships a crossing through the strait, you would need a cessation of hostilities along with an explicit sort of guarantee from the Iranians that they're not going to shoot at these ships because it's just too risky.

10:08Jessica Mendoza:There's lives at stake. There's real money at stake. And for these shipping companies and oil companies, they're just not going to risk it.

10:17Jared Malsin:Yesterday, Trump said that ships should use the strait. He also said that the strait is in, quote, great shape. Meanwhile, with about a thousand commercial ships and oil tankers trapped in the Persian Gulf, there's growing pressure on oil and energy markets. And many countries are desperate for a solution. What have you heard from talking to oil executives, specifically from Persian Gulf nations? What is their biggest fear right now?

10:44Jessica Mendoza:The chief executive of Saudi Aramco, that's the Saudi state oil company and one of the largest companies, period, in the world, said that a prolonged closure of the Strait Reform Moos would cause catastrophic consequences for the world's oil markets and severely disrupt the world's economy.

11:05Jared Malsin:Those consequences are already rippling out from the Persian Gulf across the world. That's next.

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12:47Jared Malsin:If oil can't get out through the Strait of Hormuz, it creates huge problems not just for countries looking to buy that oil, but also for oil producers in the region.

12:56Jessica Mendoza:So for countries in the Persian Gulf, there is a sort of deadline on this where they have to get a lot of this oil out or else they are going to have to continue to cut production. A lot of these countries, Iraq, Saudi Arabia, Qatar, they've already cut production. But there's a race to get the oil out before storage fills up. And what we understand is that Saudi Arabia, for example, has about two weeks before it'll run out of storage. You just have to imagine, you know, just like a huge hose. And if you step on the hose, there's going to be a buildup behind that. So that's the dynamic right now.