The document discusses the global economic system's reliance on sea lines of communication (SLOCs) and key ports, and analyzes the potential economic effects of disruptions to major SLOCs. It finds that most SLOCs could be rerouted if disrupted, with little economic impact. The sole exception is the Strait of Hormuz, through which a significant portion of global oil flows. While closure of Hormuz would severely impact oil shipping, the document argues such action would greatly damage all involved parties. The US Navy plays an important political role in responding to disruptions and maintaining open sea lanes.

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Economic Effects of a Major SLOC Closure
The transportation component of global economic system relies on two things: 1)
commerce traveling through certain sea lines of communication (SLOCs); and 2) key ports such
as Singapore, Rotterdam, and Los Angeles/Long Beach, where this commerce is collected and
distributed. Together, these SLOCs and ports present opportunities for state and non-state actors
who seek to disrupt the global system. The U.S. and its partners’ have a vested interest in
responding to any such disruption of the system in a manner that restores confidence and the flow
of commerce as quickly as possible. However, the response must be careful to avoid
exacerbating an already unstable situation. In the past when the flow of commerce was disrupted,
the global system has shown an ability to adapt by rerouting commerce, energy and resources.
Typically this has happened faster than nations can respond politically or militarily. While the
system does manage to continue to function, for political reasons, the U.S. and its partners are
expected to take action to restore the status quo.
Global Commerce
In today’s globalised world it is estimated that 90 percent of global trade is carried by
sea.1 These goods are carried by the world’s trading fleet which consists of over 50,000 ships of
approximately 690 million gross tons (GT) of displacement.2 The massive size of this fleet
offsets transport costs. For instance, the cost to a U.S. consumer at the gas pump of transporting
crude oil from the Middle East is less than one U.S. cent per liter.3
Sea Lines of Communication
The arteries of commerce that theses vessels transit daily are known as sea lines of
communications (SLOCs). These SLOCs narrow in a few areas producing tightly organized
chokepoints that are vulnerable to disruption by either an attack from the surrounding land or a
blockage in the water. The fact that most of these chokepoints are located in political hotspots
adds to their vulnerability. As western nations’ dependence on foreign sources of energy has
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grown in the past several, some of these chokepoints have taken on a strategic importance. The
major chokepoints that today’s system depends on are: the Strait of Hormuz, the Strait of
Malacca, Bab el-Mandeb, the Suez Canal, the Bosporus, and the Panama Canal. Together these
six chokepoints handle 35 million barrels (Mb/d) of crude per day. The Straits of Hormuz and the
Strait of Malacca alone account for 60 percent of global oil transit.4
With the exception of the Strait of Hormuz, which will be addressed separately, evidence
has shown that an interruption in any of the strategic chokepoints mentioned will have a minimal
economic impact on the global system. The support for this assertion comes from recent events
involving piracy in the Gulf of Aden. Bab el-Mandeb, which connects the Gulf of Aden to the
Red Sea, handles 3.3 million barrels of oil per day.5 In 2005 ships transiting the Gulf of Aden
began to be attacked by groups of individuals on speed boats armed with small arms and RPGs.
By 2008 pirate attacks had become a daily occurrence and captured ships were being ransomed
for millions of dollars. In October of that year the piracy in the Gulf of Aden had become such a
problem that some shipping employers and unions, among other nations, had agreed to declare it
a warlike operation area. This doubled the pay of seafarers.6
Another consequence of the regional piracy was a rerouting of vessels. Some bulk
shipping companies instructed their masters to keep away from the Suez Canal and sail around
the Cape of Good Hope. Using this alternate route can create a substantial increase in distance,
up to 6,000 miles depending on the destination, at a cost of $5,000-$6,000 per day.7
To determine the economic impact of this detour crude oil prices provide an appropriate
barometer. Despite the fact that shippers were choosing to make a 6,000 mile detour, crude oil
prices plummeted even though the piracy problem did not abate. From a high in July 2008 of
$147 per barrel, oil was being traded in the mid $30 range on February 17, 2009.8 This is a 77
percent drop in price in arguably the most serious global interruption to the flow of oil since the
Persian Gulf War in 1991. It is clear from this example that there are far more powerful market
forces controlling the price of oil than the effect of interruptions to the supply chain. A reduction
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in global demand for crude caused by the global financial crisis has undone a 10 year climb in oil
prices in slightly more than six months.9
Of the six chokepoints mentioned, only the Strait of Hormuz and the Bosporus do not
have alternate sea routes comparable to the Gulf of Aden; making a closure of any of them
merely an economic inconvenience. The Strait of Malacca, which is vital to China, has at least
three alternate routes through the islands of Oceania that are marginally longer, and a fourth
option of going around the Australian continent. Additionally evidenced by the Gulf of Aden
situation, the shipping industry will adapt faster than nations will in resolving the problem. The
navies of the world will, without question, be called upon to restore the status quo, but with any
situation of such an international character, an organized multilateral response will require
extensive political cooperation. The U.S. Navy with its international organizational experience is
uniquely equipped to handle this sort of effort. Its role will be critical as it has been in
coordinating the effort to stop piracy in the Gulf of Aden.
The Strait of Hormuz
The Strait of Hormuz is altogether exceptional. Approximately 88 percent of the
petroleum exported from the Persian Gulf nation’s transits through the Strait of Hormuz - 5.3
million barrels per day.10 The Strait itself is 180 kilometers long and at its narrowest point is 45
kilometers wide. The two shipping lanes are 3.2 kilometers wide with a separation zone of 3.2
kilometers.11
The most often mentioned scenario for the closing of this strait is mining by Iran. From
a tactical perspective Iran has the capability to rapidly mine the strait and cut off shipping for a
time period as long as three to four months depending on how events unfold. Some experts, such
as Anthony Cordesman of the Center for Strategic and International Studies, maintain that Iran
could only close the strait from a few days to two weeks. This, however, seems implausible
given the fact that most of the U.S. Navy’s mine countermeasure assets can only operate in a
permissible environment.12 Iranian offensive coastal assets capable of attacking these vessels
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would have to be eliminated before any operation could commence. Considering that the Iranians
would be prepared for the inevitable military response ahead of time, and the ruggedness of the
terrain north of the Strait, which could be used to conceal Iranian installations, this mission could
take months.
With the strait closed few other alternatives remain. The Saudi pipeline for Persian Gulf
oil to the Port of Yanbu on the Red Sea is the next best option. Its maximum capacity is 4.8
Mb/d. Two other pipelines exist that link northern Iraq to Syria and Turkey, their combined
maximum capacity is approximately 3 Mb/d.13 In total, the alternate pipelines can accommodate
approximately 50 percent of the capacity of the Strait of Hormuz. Therefore, a worst case
scenario would be a reduction of at least half the oil currently flowing from the Persian Gulf
being cut off for a minimum of three months.
The economic effects of a closure of the Strait of Hormuz by Iranian mining would be
severe. However, this effect must be put into context. Ultimately, Iran would pay the highest toll
for such an action. The effect of a U.S. led response would be catastrophic to the Iranian
economy. During the Tanker Wars of the late 1980s, the U.S. responded to Iranian mining with
strikes on Iranian oil infrastructure and military targets. U.S. retaliation to renewed aggression
would be similar if not more severe; the impact on the Iranian economy would be felt for years to
come. Additionally, recent Iranian attempts to frame itself as a regional hegemonic power would
be erased as a chorus of regional and international condemnation of its actions arose.
In economic terms, the rise in oil prices over the last several years peaking at nearly $150
per barrel had little effect on consumer demand for oil. With current oil prices trading in the $30-
$40 range, a doubling in price would put prices back to slightly less than half of their recent
highs. It is doubtful that this would have a drastic impact.
The most likely circumstance for Iranian action to block the Strait of Hormuz would be in
the context of a wider conflict. If a situation were to occur where a broad war in the region took
place, it is possible that the Iranians may mine the strait in an effort to inflict damage to its
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opposition. However, if such a conflict were to occur global oil prices would already be elevated
due to the conflict itself. Therefore, while the Iranian threat represents a severe vulnerability of
the world’s oil infrastructure, it is unlikely to occur.
Non-state actors may also wish to conduct operations in the Strait of Hormuz that would
affect international shipping. However, due to the size and unique oceanographic characteristics
of this strait, it seems unlikely that even a well equipped non-state actor would have the
resources, knowledge, and operational capability to conduct such an extensive operation. A non-
state actor attack would likely resemble the piracy in the Gulf of Aden; high profile, but
insufficient to totally shut down the area.
Weapons of Mass Destruction
While the full economic effects of a Weapon of Mass Destruction (WMD) attack are
extensive and beyond the scope of this paper a short evaluation is possible. Basically, it would
depend on the nature of the attack. A suicide attack by an actor either in an independent vessel on
a SLOC or detonating in the vicinity of a port facility would be severe in the vicinity of the
attack. However, other than a tightening of security by nations around the world, the global
effects would be minimal. This is a matter of individual port security.
On the other hand, a WMD detonation that originated from a device in a container or
planted in ship would be very different. The perpetrators would have had to circumvent
established security measures that are supposed to control how goods are packaged and shipped.
This would be catastrophic for the world economy. For example, if a container ship originating
in Indonesia was to be the carrier of a nuclear device that detonated in the port of Long Beach, all
confidence in security measures taken at the port of origin would be lost. Nations would take
extreme precautions to ensure that vessels entering their ports were safe. The effects of this
would extend well beyond the blast radius. What would be the length of time and the cost of
nations implementing their own 100 percent screening measures at safe distance from their ports?
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Most of the world’s good and resources come from third world nations that do not have that
money to spend.
The U.S. Navy’s Political vs. Economic Utility
This paper has asserted that the global system is able to adapt and maintain a near status
quo to most interruptions. Therefore, what is the U.S. Navy’s role in these scenarios? Given that
market forces and individual companies will adapt to an interruption faster than a military
response, the U.S. Navy’s role will be predominantly a political coordination after an interruption
has occurred. It also fills what would otherwise be a power vacuum in various areas of the world.
One example of this is the role the U.S. Navy has played in the Persian Gulf for the last half
century. Its presence in the gulf has stopped any one nation from destabilizing the region despite
the fact that many of the Gulf nations have massive oil wealth but disproportionate ability to
defend themselves. When Saddam Hussein attempted to highjack the oil wealth of Kuwait in
1990, the U.S. mobilized a global coalition to free Kuwait. Upon the war’s conclusion, the U.S.
Navy prevented Saddam from again threatening its neighbors by enforcing the no fly zones.
Conclusion
The world’s sea lines of communication are the lifeblood of a world wide system that has
reached an unprecedented level of interdependence. The Achilles heel of these is a vulnerability
to attack at a few strategic chokepoints. However, if one these chokepoints were attacked, all but
two, the Bosporus and the Strait of Hormuz, would be able to respond with little to no impact on
the system. The effect of closing the Bosporus would be predominantly local. The effect of
closing the Strait of Hormuz would severely interrupt the global flow of oil. However, in the case
of the Strait of Hormuz one must consider the likelihood of a complete shut down by a capable
entity. This is not high, as it would damage all parties, most of all the initiator.
Therefore, if the global system of seaborne commerce is not particularly vulnerable to
interruption, what then is the justification for a large naval presence in many parts of the globe?
The U.S. Navy is today patrolling the waters of the Gulf of Aden with a global coalition that it is
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responsible for coordinating. This is an action that demonstrates the diplomatic skill and
professionalism that U.S. Navy embodies. Combined Task Force 51 has had a long history of
incorporating dozens of different navies into a common goal. Even at times including nations
that are not part of the task force, as is currently that case with the Chinese piracy task force.
In a globalized environment, the U.S. Navy is an arbiter, a coordinator, and a positive
political representative to the many nations that it interacts with on a daily basis. It has
relationships with nations in all parts of the world helping them to patrol their own waters, which
keeps the global maritime environment accessible to all. The U.S. Navy does not ensure global
economic security on the high seas; it ensures that the political relationships exist so that when
global security is threatened, an effective multinational force stands ready to restore it.
1
IMO Factsheet,7
2
Ibid.,8
3
Ibid,9
4
Straights, Passages and Chokepoints, 365.
5
Ibid, 366.
6
“Gulf of Aden declared a warlike operation area”
7
“ Operators opt for Cape of Good Hope rather than Suez.”
8
“Oil slips as demand for crude wanes.”
9
http://www.wtrg.com/prices.htm
10
Straights, Passages and Chokepoints, 367
11
Closing Time, 86.
12
Ibid, 84.
13
Straights, Passages and Chokepoints, 367.
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