MARKET PERSPECTIVE

By J Mulraj

Mar 7- 13, 2026

How Blocking a Narrow Strait of Hormuz Can Have a Wide Impact

The US, and its ally, Israel, attacked Iran, after negotiations to get it to give up its ambition to acquire nuclear weapons failed. Iran claimed that it wanted the technology for peaceful purposes, viz nuclear power plants and medicine. Yet, apparently, it refused, during talks preceding the attack, an offer by USA to supply Iran non weapons grade nuclear fuel, free of cost, for a decade. This is as narrated by Steve Witkoff, one of the American negotiators, in the video.

The refusal by Iran of free supply for a decade, of non nuclear grade nuclear fuel made the US negotiators conclude that Iran’s intention was to acquire nuclear weapons capability. This led to the attack, on Feb 28.

The history of US-Iran interactions is quite fascinating.

In 1953 US President Eisenhower launched an Atoms For Peace programme. Perhaps out of guilt of the dropping of atomic bombs on Hiroshima and Nagasaki in 1945. The aim was to promote peaceful uses for nuclear energy, in electricity, medicine and agriculture. Also to lead to collaboration, which led, in 1957, to the implementation of a global body, IAEA, or International Atomic Energy Agency. Bilateral agreements were signed with several countries, including Iran (and India too). In Iran, USA helped create the Tehran Nuclear Research Centre, helped train scientists in nuclear technology and supplied a 5 MW research reactor in 1967. Not only that, USA supplied weapons grade nuclear fuel to Iran as well!

Also, in 1953, British PM Winston Churchill, with the help of America’s CIA, plotted to get the democratically elected and popular leader, Mohammed Mosaddegh removed. Mossadegh had nationalised the Anglo-Iranian Oil Company (now British Petroleum), on the proposition that Iranian oil wealth must stay in Iran, and was removed for his temerity. His removal strengthened the rule of Mohammed Reza Pahlavi, Shah of Iran.

The US realised, in the ‘70s that they had made a mistake, and sought to restrict use of nuclear power for peaceful purposes only. The Shah of Iran disagreed, and bought nuclear plants from Germany and France. By Jan 1979 the Shah was removed in the Islamic Revolution. Ayatollah Khomeini became the Supreme Leader.

The Islamists captured the American Embassy in Tehran and held hostages. It was declared by USA as an enemy state. Despite this, in a scandal called the Contra Affair, the US, under Ronald Reagan, sold arms to Iran, the enemy state holding US citizens hostage! Why? The sale proceeds were to be sent to fund the Contras, a rebel group fighting to overthrow the left wing group, the Sandinistas, in Nicaragua! Intriguingly, the weapons were routed through Israel!

The US also permitted the creation of Iran’s nuclear pipeline, with a lot of knowhow, centrifuge designs, manufacturing instructions and equipment coming via A Q Khan, of Pakistan. America needed Pakistani help to help Afghanistan in its war with Russia! AQ Khan expanded his network and sold nuclear knowhow to several countries including Libya and North Korea without interference.

Bizarre are the ways of high stakes geopolitics!

In 2015 President Obama pushed through a deal with Iran called JCPOA, or Joint Comprehensive Plan of Action, signed by US, UK, France, Russia, China, Germany, post which sanctions were lifted, allowing Iran to raise supplies. Until Trump came and tore up the JCPOA, and re-imposed sanctions, after which crude oil exports came sharply down. Iran was in a poor financial state.

Until Biden became the President, foolishly lifted sanctions, and released billions of dollars of frozen assets. This money helped Iran to build up it’s current weaponry and also to fund proxies.

Such are the convoluted machinations of geopolitics!

In the ongoing conflict, the militarily superior USA has destroyed Iran’s airforce and navy, which were, in any case, not a match for it. It claims to have also destroyed over 85% of Iran’s missile capacity, and its manufacturing capacity for making more. It has decapitated a chunk of Iran’s senior military leadership, including the Supreme Leader, replaced by his son, and several top IRGC Generals. The missiles were buried deep in tunnels under the mountains, with concrete fortifications, but were, nonetheless destroyed using B1, B2 and B52 bombers with bunker bombs.

To counter the threat of drone swarms, Raytheon has developed the Coyote anti drone system, which uses a re-usable missile to fry the drone systems with EMP (Electro Magnetic Pulse). Since they destroy a swarm of drones and since they are re-usable, the financial asymmetry has reversed! American laser weapons are also able to shoot drones at an insignificant cost.

So Iran is left with the threat of choking the Strait of Hormuz, a narrow passage (33 kms at it’s narrowest) through which a fifth of international oil and gas trade passes. This has led to several effects.

The price of crude oil has yo-yoed, shooting up from $82 / barrel to $116 and down to $84, after IEA, the International Energy Agency, released 400 million barrels of oil. However Qatar, a major supplier of gas, has declared it’s inability to supply, citing force majeure. A lot of eateries, as well as the Mid Day Meal Program for school kids, have been impacted. A fertiliser shortage is expected, which would impact food production. Several plastics and chemicals are affected.

In India, Reliance Industries what’s entered into a $ 300 b. deal with USA. Under it, America First Refining, a US company, will set up a refinery on Texas. Reliance has committed to buy, over ten years, $ 300 b. worth of American products, comprising 1.2 billion barrels of light shale oil, worth $ 125 b. and 50 b. barrels of refined products, worth $ 175 b. It’s a mutually beneficial deal.

Last week the BSE Sensex closed at 74563, down 4355 points over the week.

After destroying most of Iran’s weaponry, USA now has to concentrate on the Strait of Hormuz. Iran is using small boats, and missiles, to threaten commercial ships. With each success, insurance cost goes up, America has brought in George W Bush to help (not the ex President, but the aircraft carrier). It has also brought in Apache helicopters.

It can also use it’s naval might to block Iranian vessels carrying oil, a tit-for-tat move against Iran’s tactic to block vessels of others.

Let’s pray that we soon get to say ‘oil’s well that ends well’

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Comments may be sent to: jmulraj@asiaconverge.com