“If the legislation is passed and sanctions are put in place by the US, we would comply and ensure underwriters in Lloyd’s were compliant, although we would not want the compliance burden to be disproportionate,” said Sean McGovern, general counsel for Lloyd’s.

Lloyd’s is telling underwriters they would be wise to review their contracts to look for ships heading to Iran. Mr McGovern said it was possible that underwriters would be compelled to ensure that a ship they had covered would not be going to Iran.

This could take the form of inserting exclusion clauses in contracts, specifying that ships would not be covered if they carried goods to Iran. Such changes would be likely, at the least, to make insurance for ships serving Iranian ports harder to obtain and more expensive. They could also reduce the supply of refined oil for Tehran.

Meanwhile, Abdulrahim Al Awadi, an official at the UAE’s central  bank has said that it “will implement any UN resolutions without reservations on any countries, including Iran.”  The article went on to link the issue of Emirati sanctions enforcement to the question of the UAE being placed on an international money laundering blacklist:

When asked whether the U.A.E. is worried about IRGC money being funneled through U.A.E. banks, Al Awadi refused to answer the question, but stressed on the U.A.E.’s compliance with FATF standards.

A new FATF list of countries that are considered to be lax in combatting terrorism financing and money laundering will be released after the conference, which ends Feb. 19, Al Awadi said. The list is called the International Cooperation Review Group, or ICRG.

Al Awadi added the U.A.E. is confident that it will not be placed on the list.

“Our (anti-money laundering and financial terrorism) laws are strong and there are no loop holes,” he said.

The key distinction here is that Lloyds will comply with unilateral U.S. sanctions, while the UAE seems to require multilateral sanctions approved by the UN to act– measures that Russia and China are now working to delay and dilute, according to a new report by ICG, and others.  Does Al Awadi’s statement reflect a newfound Emirati resistance to go along with informal U.S. sanctions of the sort arranged by Stuart Levey at the U.S. Treasury?  There’s not enough evidence here to tell, but an issue to watch closely as the sanctions game picks up.  -WW

The answer turns out to be: very hard. Iran would have to disable many of the 20 tankers that traverse the strait each day — and then sustain the effort. Iran cannot rely on the psychological effects of a few hits. Historically, after a short panic, commercial shippers adapt rather than give up lucrative trips, even against much more effective blockades than Iran could muster today. Shippers didn’t stop trying during World War I. Nor did the oil trade in the Gulf seize up during the 1980s Tanker War, when both Iraq and Iran targeted oil exports.

Instead, tankers tend to move around dangers. The strait is deep enough that even laden supertankers can pass safely through a 20-mile width of good water, not just the 4-mile-wide official channel. Tankers already take other routes when it is convenient; during a conflict, they would surely scatter, as they did in the 1980s. Although the strait is narrow compared with the open ocean, it is still broad enough to complicate Iran’s effort to identify targets for suicide and missile attacks. The area is too large to cover with a field of modern mines dense enough to disable a substantial number of tankers, especially given Iran’s limited stockpile.

Gholz also questions the ability of anti-ship missiles or small craft warfare to disable craft:

Over five years of the Iran-Iraq War, 150 large oil tankers were hit with antiship cruise missiles, but only about a quarter were disabled.

But surely ship insurers would want higher premiums if silkworm missiles are being lobbed at their tankers. And surely any type of military conflict in Hormuz – even if it does not end up taking out a large number of tankers – would be enough excuse for traders to bid up oil prices. The real question, which Gholz is right to point out, is the question of how long Iran could sustain such a military effort in the face of the inevitable U.S. response. My own sense is that an attack on shipping in Hormuz would produce an immediate and severe spike in oil prices, but one that would subside fairly quickly.

-WW