Hormuz enters a new phase — Iran plans exclusion zone as US says naval escorts may become the new normal

The Strait of Hormuz may be entering a fundamentally different phase.

After six months of war, attacks on tankers, mine-laying, naval operations and repeated attempts to restore commercial shipping, Iran is now proposing something more permanent.

Tehran says it intends to establish a new maritime “exclusion zone” around the approaches to the Strait.

At almost the same time, the United States has acknowledged another uncomfortable reality.

US Energy Secretary Chris Wright says he would not describe the Strait of Hormuz as safe for oil tankers unless they are travelling under American naval protection.

He has raised the possibility that a sustained US military presence protecting commercial shipping could become the “new normal.”

Put those developments together and a different picture emerges.

The Strait may not simply be waiting to return to the way it operated before the war.

Instead, one of the world's most important energy routes could be evolving into a permanently contested and heavily militarised shipping corridor.

For Australia, that distinction matters enormously.

Because even if the oil continues to flow, the cost of moving it may remain structurally higher.

Iran proposes an exclusion zone

Iran's new Supreme National Security Council chief, Mohsen Rezaei, announced that Tehran intends to establish what it describes as a prohibited or exclusion zone around the approaches to Hormuz.

Precise details have not yet been published.

Rezaei said the zone would extend from the line of the American naval blockade towards the Strait and into parts of the Persian Gulf.

Ships entering the zone intending to transit Hormuz could, according to the Iranian proposal, be added to Iran's sanctions list.

That does not mean Iran has acquired internationally recognised authority to regulate one of the world's most important international waterways.

It does mean Tehran is attempting to impose its own operating rules upon commercial shipping.

That is a significant development.

From attacks to a system

Iran has already been moving in this direction.

Its blacklist of vessels accused of violating Iranian requirements has expanded.

Some international energy companies and refiners have reportedly avoided using ships appearing on Iranian lists.

Iraqi oil shipments, meanwhile, have demonstrated that vessels acceptable to Tehran can still obtain passage.

The proposed exclusion zone therefore should not be viewed in isolation.

It potentially represents another stage in Iran's attempt to turn disruption into a system.

Instead of merely threatening Hormuz, Tehran appears increasingly interested in determining who may pass through it and under what conditions.

That would fundamentally change the commercial character of the Strait.

America has a competing system

The United States is attempting to impose precisely the opposite outcome.

Washington regards Hormuz as an international waterway through which commercial vessels must be allowed to travel.

The US Navy has therefore been escorting and protecting ships.

American forces have cleared mines.

They have intercepted Iranian missiles and drones.

They have attacked Iranian maritime and missile infrastructure.

Most recently, the United States struck three Iranian oil tankers after Iranian attacks directed at American warships.

Washington has also imposed a counter-blockade designed to restrict Iran's own oil exports.

The result is increasingly extraordinary.

Iran is attempting to control passage through Hormuz.

The United States is attempting to guarantee passage through Hormuz.

And commercial ships are operating between the two.

The US says escorts may become normal

US Energy Secretary Chris Wright's latest comments deserve particular attention.

Asked whether Hormuz could now be considered safe for tankers, Wright would not give that assurance without US naval protection.

He suggested that an extended American military presence protecting shipping might become the “new normal”.

That phrase may ultimately prove more important than another day's tanker count.

Because it raises a profound question.

What if Hormuz does not return to normal?

What if commercial oil and gas shipments continue, but only within an environment of naval escorts, exclusion zones, blacklists, surveillance, minesweeping and persistent military risk?

The world would still receive Gulf energy.

But it would not necessarily receive it at the same cost.

A tanker escorted by a warship is not normal trade

The distinction is important.

Military protection can keep ships moving.

It cannot automatically restore commercial normality.

Shipowners still assess risk.

Insurers still price risk.

Crews still enter a conflict zone.

Tankers may have to wait for escorts.

Routes may change.

Schedules become less predictable.

Ships may conceal their movements.

Cargoes may have to be transferred between vessels.

Every additional complication has a cost.

Eventually someone pays it.

The producer can absorb some.

The shipping company can absorb some.

The refinery can absorb some.

But ultimately part of the cost reaches consumers.

Including Australians.

Iran's leverage may actually be weakening

There is an important counterargument.

Despite Iran's continuing ability to disrupt shipping, there are signs its broader economic leverage is declining.

The United States has imposed severe pressure on Iranian oil exports.

Iran's access to international revenue has been constrained.

Alternative energy supplies have helped prevent the global oil market from experiencing the catastrophic shortage Tehran might once have been able to create by disrupting Hormuz.

That helps explain something that might otherwise appear surprising.

After everything that has happened — mines, tanker attacks, missile exchanges and renewed American strikes — Brent crude has remained below US$100 a barrel.

Markets are worried.

They are not panicking.

That is an important distinction.

The world has adapted

Six months of disruption have forced the global energy system to adapt.

Alternative crude supplies have become more important.

Shipping patterns have changed.

Cargoes have been redirected.

Gulf exporters have explored alternatives to conventional Hormuz transit.

Some LNG cargoes have been transferred between ships outside the Strait.

Tankers have travelled without normal tracking signals.

Refiners have sought replacement supplies.

Governments have strengthened fuel-security arrangements.

The result is that Iran can still make energy more expensive without necessarily being able to create the catastrophic global shortage that once appeared possible.

That is good news.

But expensive energy is still an economic problem.

Australia's position remains secure

Australia's latest official figures provide reassurance.

Energy Minister Chris Bowen said in his September 5 fuel-security update that Australia had 43 days of petrol, 33 days of diesel and 33 days of jet fuel.

There were 36 fuel ships travelling towards Australia.

More importantly, approximately 3.5 billion litres of fuel were contracted for delivery during the following four weeks.

That contracted volume was actually 300 million litres higher than the previous week's figure.

Australia therefore does not presently face an imminent fuel shortage.

There remains no justification for panic buying.

But there is a distinction we have repeatedly made throughout this crisis.

Fuel security is not the same thing as cheap fuel.

Australia's stocks are doing their job

The Federal Government continues to operate at Level 2 — Keep Australia Moving — under the National Fuel Security Plan.

Australian industry has also been holding substantial domestic stocks.

Government statistics show industry holdings have been above minimum requirements.

That provides resilience.

It buys time when international shipping is disrupted.

It reduces the risk that a temporary interruption overseas immediately becomes empty service stations in Australia.

But stockholding cannot isolate Australia permanently from international prices.

Australia remains integrated into the Asian petroleum market.

And that is where the longer-term Hormuz problem becomes important.

Australia's real exposure is refined fuel

Brent crude remains the world's headline oil benchmark.

It is not the price Australian motorists actually pay.

Australian petrol prices are heavily influenced by the Singapore Mogas 95 refined-petrol benchmark.

Diesel is strongly influenced by Singapore Gasoil 10 ppm.

Jet fuel has its own international refined-product market.

Those markets incorporate far more than the price of crude oil.

They incorporate refinery capacity.

Shipping.

Insurance.

Freight.

Regional supply and demand.

Currency movements.

And increasingly, geopolitical risk.

That means Brent could remain below US$100 while Australian diesel and other refined fuels remain historically expensive.

Diesel remains the economic vulnerability

For Australia, diesel deserves particular attention.

Diesel moves the economy.

Trucks depend upon it.

Farm machinery depends upon it.

Mining depends upon it.

Construction depends upon it.

Regional Australia depends heavily upon it.

Higher diesel prices therefore do not remain at the service station.

They move through freight bills and supply chains.

Eventually they can affect food, construction, retail and manufacturing prices.

That is how a naval confrontation thousands of kilometres away can contribute to Australian inflation.

Aviation faces the same structural problem

Jet fuel presents another vulnerability.

Australia is a long-distance country heavily dependent upon aviation.

International tourism depends upon it.

Regional communities depend upon it.

Businesses depend upon it.

If military protection becomes a permanent part of Gulf energy transportation, some of the additional costs associated with moving petroleum will eventually be reflected in aviation markets.

That does not mean every airline ticket automatically becomes dramatically more expensive.

It does mean another source of cost pressure remains embedded in the system.

The question has changed

Earlier in the war, the central question was simple:

When will Hormuz reopen?

That may now be the wrong question.

Hormuz can be open while remaining dangerous.

Oil can move while shipping remains militarised.

Tankers can transit while insurance remains expensive.

The United States can escort vessels while Iran maintains the capability to threaten them.

The better question is:

When will Hormuz become an ordinary commercial waterway again?

The answer may be considerably further away.

What would normal actually look like?

Normal would not require daily announcements about how many tankers crossed the Strait.

Normal would not require US Navy escorts.

Normal would not involve Iranian exclusion zones.

Normal would not require minesweepers clearing shipping channels.

Normal would not involve tankers switching off their tracking systems.

Normal would not require oil companies to determine whether their ships appear on an Iranian blacklist.

Normal would be remarkably uneventful.

Tankers would arrive.

They would transit.

They would load.

They would leave.

Insurers would treat the voyage as an ordinary commercial risk.

And nobody outside the shipping industry would pay much attention.

That is the normality Australia ultimately needs.

A new strategic reality

There is another possibility that governments may increasingly have to consider.

Hormuz may never return completely to its previous status.

A persistent American naval presence could become part of the region's security architecture.

Iran may continue trying to assert influence over shipping.

Gulf states may accelerate pipelines and export terminals capable of bypassing the Strait.

Oil companies may permanently diversify shipping arrangements.

Countries dependent upon imported fuel may increase strategic reserves.

Australia may continue strengthening domestic stockholdings and alternative fuel capability.

In other words, the international energy system could adapt around a permanently less secure Hormuz.

If that happens, the Iran war will have changed global energy trade even after the shooting eventually stops.

The Times View

There is a temptation to think about the Strait of Hormuz in binary terms.

Open or closed.

Safe or dangerous.

War or peace.

The reality emerging after six months is considerably more complicated.

Hormuz can be open and dangerous simultaneously.

Oil can move while normal commerce remains disrupted.

American naval power can protect ships without eliminating the underlying threat.

Iran can be economically weakened while retaining enough military capability to make international trade more expensive.

That appears increasingly close to the situation confronting the world today.

For Australia, there is reassuring news.

We have fuel.

Stocks remain substantial.

Billions of litres are contracted for delivery.

Ships continue travelling towards Australia.

There is no reason for panic.

But Australia's longer-term challenge is changing.

If Hormuz becomes a permanently militarised energy corridor, the question will no longer be when the crisis ends.

It will be how much the new system costs.

That cost will appear in tanker freight.

Insurance.

Diesel.

Jet fuel.

Business expenses.

Freight.

And potentially inflation.

The world has demonstrated that it can keep oil moving despite Iran's attempts to disrupt one of its most important waterways.

The next challenge is harder.

It must find a way to make moving that oil ordinary again.

Until that happens, Australia may have secure fuel supplies — but we will continue paying part of the price of an unresolved war thousands of kilometres away.