THE ISRAELI ATTACK on Iran’s gas field in South Pars on March 20 marked a dangerous escalation in the war which erupted on February 28. This was followed by Iranian retaliation across the Gulf, in which a number of oil and gas installations in the Gulf states were hit. This included the Ras Laffan plant in Qatar. The plant, which was already shut down, suffered further damage.
Qatar said the repair work would take up to five years. US President Donald Trump distanced himself from the Israeli strike and said that neither the US nor Qatar had any knowledge of it, and Iran did not know this. Trump added that he had advised Israel against attacks on energy installations in future. The price of Brent crude, an international benchmark, jumped to $106.41 per barrel. It has since come down to $99.46 per barrel. The Indian crude oil basket has crossed $157 per barrel. It was trading at $70.86 per barrel on the eve of the war. An increase of $1 per barrel adds Rs14,000 crore to India’s annual import bill.
The second oil price shock was triggered by the loss of 10 per cent of global production in 1979. We may now be seeing the beginning of the third oil price shock. Its effect will be much worse since this time global gas supplies are also affected. The closure of the Ras Laffan plant has resulted in a loss of 20 per cent of the world’s LNG supply.
As the war has progressed, a rift has appeared in the Trump administration. The US counter-terrorism chief Joe Kent has resigned. In a post on X, he said Iran posed “no imminent threat” to the US. He added that the Trump administration “started this war due to pressure from Israel and its powerful American lobby”. Tulsi Gabbard, the director of the US national intelligence, in a testimony to the US Congress, said that “Iran’s nuclear enrichment programme was obliterated” in the US strikes last June. She added that “there have been no efforts since then to try to rebuild their enrichment capability”. She stopped short of contradicting Trump and did not give a direct answer to the question of whether Iran posed any imminent danger to the US. She said that this determination could only be made by the president.
Much the same was said by Oman’s foreign minister Badr al-Busaidi, who was the mediator in the US-Iran negotiations. He said in an interview on February 27 that a “peace deal is within our reach”. Israel and the US launched their attack against Iran the following day. The assassination of Iran’s supreme leader and exhortations to the Iranian people to rise against the government made clear that the aims went beyond the nuclear issue to regime change. The disastrous consequences have affected not only the countries in the region but also the entire international community.
Trump asked China, NATO countries, Japan, South Korea and Australia to send naval units to work with the US Navy to open the Persian Gulf. He also announced that measures would be taken to bring down insurance rates for ships and cargo transiting the Persian Gulf. But nothing happened. China remained non-committal even though Trump announced postponing his visit to that country. Nor has NATO come forward to provide naval units. Germany’s defence minister declared that this is not “our war”. Japan, South Korea and Australia have also refused to provide contingents to open up the strategic waterway. The quickest way to open the Persian Gulf for international navigation is to stop Israeli and US bombing of Iran. It is unrealistic that one side can continue the war while the other side will exercise restraint.
In order to check the steep increase in oil prices, Trump has announced two far-reaching concessions. The US lifted sanctions on the supply of Russian crude oil on the high seas. The supreme irony is that the US also had to lift sanctions on Iranian crude oil while it is at war with that country.
The closure of the Persian Gulf is not simply a result of kinetic action by Iran. Seven of the largest insurance companies have stopped providing war-risk insurance cover to ships and cargo transiting through the Gulf. This situation is worse than the Houthi attacks in the Red Sea. At the time, rates went up, but war-risk coverage was still available.
On March 21, Trump gave a 48-hour ultimatum to Iran to open the Persian Gulf, failing which he threatened to bomb Iran’s power plants. Iran said it would hit power plants in Gulf countries. Trump has since announced his decision to postpone the attack for five days and also offered to negotiate. A 15-point US offer has reportedly been submitted to Iran via Pakistan. Iran, which has its own conditions, has denied that it has agreed to negotiate.
Indian ships have been allowed by Iran to cross the Hormuz Strait. But External Affairs Minister S. Jaishankar has stated that India does not have “blanket” permission. India gets 30 per cent of its crude oil and 25 per cent of its LNG from the Gulf. The latter presents a far more grim situation. Unlike oil, where India has strategic reserves, LNG storage poses problems. Supply of gas to industry has been cut. A partial hike in petrol prices has also been announced. India imports 60 per cent of its LPG requirement from the Gulf region. The loss of supply has been partially offset by increasing domestic production by changing the product mix of refineries.
Differences have also surfaced between US and Israeli war aims. While Trump is looking for an off-ramp, Israel has intensified its bombing against Iran, as well as against Hezbollah in Lebanon.
There is a need for an immediate end to the war and the opening of the Persian Gulf to international navigation. This has to be followed up with the resumption of negotiations on the nuclear issue from where they were left off in Geneva on the eve of the war.
The author was ambassador to Iran and director, GAIL.