Consequences of the conflict with Iran: From the Strait of Hormuz to the global economy

The closure of the Strait of Hormuz

According to Eran Efrat, in the event of a military incident in the Persian Gulf, it does not matter who declares the Strait of Hormuz closed. Insurance companies will not allow ships to pass through the area, and traffic will effectively stop. He explains that most of Saudi Arabia’s oil production has no real alternative to passing through the strait, as the pipeline leading to the Red Sea has limited capacity.

Blocking the strait, which he describes as the global shipping equivalent of the Ayalon Highway at 8 a.m., will cause severe delays in the global energy supply. The result will be an immediate rise in oil and gas prices. Efrat adds that if the Houthis join the campaign and also close the Bab el-Mandeb Strait, the world will face a severe trade crisis. Boris Gorelik notes that the immense economic pressure created could spur the United States to act for a swift end to the conflict.

Iran’s regional isolation

Efrat notes that the Iranian attack targeted almost all of its neighbors, including Qatar, its partner in the world’s largest gas field, as well as Saudi Arabia, Kuwait, Bahrain, and the Emirates. According to him, even if the regime survives the military attack, it will be very difficult for it to restore its standing. Iran depends on its neighbors for trade and assistance, and the attacks have created a geopolitical rift that will make it difficult for it to recover.

The day after the regime’s fall

Efrat, who says he has never known an Iran not under sanctions, describes the enormous economic potential inherent in the country. Iran has vast oil reserves, is second only to Russia in its gas reserves, and holds deposits of minerals and precious metals estimated to be worth a trillion dollars.

However, he emphasizes that the country’s infrastructure, from the refining industry to production, is in a dilapidated state and will require huge investments to realize this potential. If the regime falls and sanctions are lifted, Iran will become a major energy player in the global market. Its entry will flood the market with supply and lead to a significant drop in prices.

Who would oppose the change?

According to Efrat, there are countries that would not be happy to see Iran freed from sanctions. Chief among them is China, whose small refineries, known as “teapots,” rely on buying discounted Iranian oil. If Iran starts trading on the open market, China will have to pay a higher price. Russia and Turkey also benefit from the current situation.

However, Efrat does not believe that China will intervene militarily to prevent the regime’s fall. He explains that China has no history of military intervention far from its borders and tends to adapt to new realities. He gives the example of Venezuela, where China dramatically reduced its oil purchases after the United States began managing the sales.

The country’s future and relations with Israel

The conversation also touches on the fear of a power vacuum in Iran. Efrat expresses skepticism about the ability of the exiled crown prince, Reza Pahlavi, to lead the country, and raises the concern of a civil war.

Despite this, he is optimistic about the future. According to him, a post-regime Iran could become a tremendous partner for Israel. He argues that in terms of human capital and capabilities, the Iranian people are perhaps the most similar to Israel in the Middle East. Efrat believes that a stable, Western-oriented Iran, similar to a well-managed Turkey, could be a positive engine of growth that would propel the entire region forward.