The recent increase in tensions between the U.S. and Iran over the Strait of Hormuz has at its root the world’s unhappy relationship with crude oil being shipped through the Persian Gulf. The recent threats by the Islamic Republic blockade the Strait to oil shipments has added several dollars in risk premium to the oil price and comes in response to a series of punitive sanctions by the U.S. and its European allies who are trying to coerce Iran into abandoning their nuclear weapons research program.

According to a new Intelligence Report published today by SAFE, Iran is likely to intensify its threats toward oil supplies moving thorough the Persian Gulf over the course of 2012 as part of an unconventional method of conflict that uses oil as a strategic weapon to keep the West from continuing its trend of hard-hitting sanctions.

Unfortunately, there is no elegant way for the U.S. and its allies in the short-term to put a stop to Iran’s behavior. The United States has lacked good policy options against the Iranian regime for decades because the U.S. transportation sector is heavily dependent on oil. In the short and medium-term, additional sanctions and better strategic oil stockpile management may help alleviate some of the risk posed by a cut-off in oil shipments by Iran. In the long-term, however, the key to any effective strategy that will reduce U.S. dependence will likely only be found by shifting America’s transportation sector toward non-petroleum fuels like electricity and natural gas.

Click here to read the full Intelligence Report.

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