Nesa identified Issues: Strait of Hormuz
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- 5Economic impacts
- 5.1Measures of macroeconomic impacts
4.5Other possible scenarios4.5.1Other analysts viewsThere are some oil industry analysts who consider that a closure would persist for more than that assumed in this scenario. For example according to Michael Singh, managing director of the Washington Institute and a former senior director for Middle East affairs at the National Security Council, “It is unlikely that Iran could close the Strait for a meaningful period of time. Any Iranian effort to seize control of the Strait would meet swift and determined resistance from the U.S. Navy, with the support of U.S. allies in the region and beyond. Iran’s regular navy and air force are no match for their U.S. counterparts; both would almost certainly be dispatched quickly in any outright confrontation. Recognizing this, Iran is more likely to use the asymmetric warfare capabilities of the elite Islamic Revolutionary Guard Corps Navy to disrupt shipping through the Strait and to harass U.S. forces. The Revolutionary Guards could use small boats (either individually or in “swarms”); influence mines (which do not require that a ship run into them); midget submarines; anti-ship cruise missiles; and even divers. These tactics could be a nuisance, but they are also unlikely to shut the Strait. Yet they would probably provoke a strong U.S. response.”8 According to a New York Times article published on January 13, “Estimates by naval analysts of how long it could take for American forces to reopen the strait range from a day to several months, but the consensus is that while Iran’s naval forces could inflict damage, they would ultimately be destroyed.”9 A Reuters report from 5 January 2012 asserted that: “Should Iran's rulers ever make good their threats to block the Strait of Hormuz, they could almost certainly achieve their aim within a matter of hours. But they could also find themselves sparking a punishing – if perhaps short-lived – regional conflict from which they could emerge the primary losers. ..... Few believe Tehran could keep the strait closed for long – perhaps no more than a handful of days....”10 Mark Thompson, in “Can Iran Close The Strait of Hormuz” Battleland.Blogs.Time.com, December 28, 2011, quotes a 2008 Naval War College study by Navy Commander Rodney Mills as stating: "There is consensus among the analysts that the U.S. military would ultimately prevail over Iranian forces if Iran sought to close the strait. The various scenarios and assumptions used in the analyses produce a range of potential timelines for this action, from the optimistic assessment that the strait would be open in a few days to the more pessimistic assessment that it would take five weeks to three months to restore the full flow of maritime traffic." A September 2011 report from CNA (Centre for Naval Analyses) stated: "A detailed analysis of this question was conducted by [Caitlin] Talmadge using a scenario in which Iran was able to lay several hundred mines in the Strait and the Persian Gulf. In her analysis, Talmadge assumes the U.S. considers its mine countermeasure (MCM) forces too vulnerable and scarce to use in a hostile environment, and so would instead wait to use them until it had essentially eliminated the threat from [antiship cruise missiles] ASCMs. Using a technical analysis of U.S. air and Iranian ASCM and air-defence capabilities, she concluded it could take between 9 and 72 days for the U.S. to do so. Using mine-clearance rates based on previous efforts in the Persian Gulf (e.g., Operation Candid Hammer), she concluded it would take between 28 and 40 days to adequately clear the minefields. Putting these two timelines together, she concluded overall that it could take 37 to 112 days for the U.S. to reopen the Strait under such a scenario. Many of her assumptions regarding Iranian capabilities were subsequently disputed as giving the Iranians too much credit, but the disputer did not rule out completely the capability of Iran to threaten the Strait."11 The assumptions behind the chosen scenario are not intended to be interpreted as a prediction of the likely progression of a closure. However, some discussion is provided of their implications for the results reported in this report in Section 5.
For the economic analysis, ACIL Tasman developed two scenarios and two elasticity cases: Scenario 1 assumes seven refineries operating relatively low elasticity case (Case A) higher elasticity case (Case B)
relatively low elasticity case (Case A) higher elasticity case (Case B). The economic impacts reported below are based on the difference between each scenario and its respective reference case. As discussed in Section 2.4, the reference scenarios already take into account the resource impacts of closing three refineries. 5.1Measures of macroeconomic impactsOne of the most commonly quoted macroeconomic variables at a national level is GDP which is a measure of the aggregate output generated by an economy over a period of time (typically a year). From the expenditure side, GDP is calculated by summing total private and government consumption, investment and net trade.12 Although changes in real GDP are useful measures for estimating how much the output of the relevant economies may change, change in the real income of a region is a more relevant measure of the change in economic welfare of the residents of a region. Indeed, it is possible that real GDP can increase with no, or possibly negative, changes in real income. In Tasman Global, a change in real income at the national level is synonymous with change in real gross national disposable income (RGNDI) reported by the ABS. Real income is equivalent to real economic output plus net foreign income transfers, while the change in real income is equivalent to the change in real GDP, plus the change in net foreign income transfers, plus the change in terms of trade, which measures changes in the purchasing power of a region’s exports relative to its imports13. As Australians have experienced first-hand in recent years, changes in terms of trade can have a substantial impact on people’s welfare independently of changes in real GDP. Change in real income (as projected by Tasman Global) is ACIL Tasman’s preferred measure of the change in economic welfare of residents.
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