The Pentagon is sending the aircraft carrier USS John C. Stennis to the Middle East four months ahead of schedule to ensure there are at least two carrier battle groups in the Gulf region - with the US Navy having had two carriers operating in the area for quite some time.This time, the stakes are the highest since 1987, when the US destroyed Iran's Navy near Hormuz in a move which helped end a 1980-88 Iran-Iraq war in favour of the then Saudi/GCC-backed Baghdad regime.

The US usually rotates one of the two carrier battle groups into the Gulf for several weeks at a time while the other operates in the Arabian Sea, providing air support for the war in Afghanistan. Last week, Pentagon spokesman George Little confirmed that Defence SecretaryLeon Panetta had agreed to a recent request from US Central Command to maintain a two-carrier presence in the Gulf. (In September the US was going to go down to one carrier, as the USS Enterprise would not be replaced after it left the region. To prevent that from happening the Stennis has had its deployment orders changed from the Pacific tothe Middle East). Little said the Stennis was being sent so that there was no gap in between two carrier assignments to the region. Also being sent on the Gulf deployment will be the cruiser USS Mobile Bay.

Little said the need to send the carrier early was "not a decisionbased solely on the challenges posed by Iran". On July 15, the USS Eisenhower replaced the other carrier in the region, the USS Abraham Lincoln, which was headed to Norfolk for maintenance work. In order tomake the Stennis/Enterprise swap possible, the Enterprise's deployment will be extended for what officials say will be "a few days". It also means the crew of the Stennis will be out to sea for longer than they had expected. Originally slated for a four-month Pacific Ocean deployment, the Stennis will now leave four months early to serve a seven-month deployment which will last through April 2013. By then, there could be war in which Iran's Navy would be destroyed if the rulingIslamic Revolutionary Guard Corps (IRGC) tries to close the Strait of Hormuz.

Defence Secretary Leon Panetta on July 18 told a Pentagon news briefing the US had the military capacity to defeat any Iranian attempt to block Hormuz. He said: "The United States is fully prepared for all contingencies here. We've invested in capabilities to ensure that the Iranian attempt to close down shipping in the Gulf is something that we are going to be able to defeat, if they make a decision to do that". His comments came amid rising tensions in the region over Iran's nuclear and regional ambitions.

A security team aboard a US navy oiler last week opened fire with a .50 caliber machine gun on a small boat off the UAE after it failedto heed warnings to alter its course. An Indian fisherman was killedand three others were wounded in the incident, which is under investigation. And concerns about the security situation in the Gulf, the main route for the world crude oil trade, have prompted the Pentagon to bolster its military presence.

The US military has announced more than 20 power would participatein anti-mine exercises in the region in September. The exercises will not take place in the Hormuz Strait and the Pentagon denied it was sending a message to Iran. The USS Ponce, a forward staging base ship, arrived in the Gulf earlier this month to help support mine counter-measure operations and other maritime security efforts in the region.

British Defence Secretary Philip Hammond, appearing at the Pentagon news briefing with Panetta, said London was committed to helping ensure Gulf sea-lanes remained open. He added: "I can reaffirm our commitment to play our part in maintaining freedom of navigation in the international waters of the Gulf and the Strait of Hormuz. Any attemptby Iran to close the Strait would be illegal and the international community will not allow it to happen".

Panetta said Washington was prepared to respond to any move against sea commerce by Tehran. He stressed: "The Iranians need to understand that the United States and the international community are going to hold them directly responsible for any disruption of shipping in that region, by Iran or for that matter by its surrogates".

The volume of Iranian crude oil exports since July 1 has fallen toa 22-year low as a result of a world embargo including exceptionallytough measures against Iran's central bank. In its monthly report out last week, OPEC said Iran's June crude oil output fell by 188,500 b/d to 2.96m b/d. The last time Iran's annual average production fell below 3m b/d was in 1990. The output in July was much lower.

Iraq's crude oil production in July is averaging almost 3.4m b/d -a record beating a July 1990 high of just over 3.35m b/d. Saudi Arabia and the other GCC states have all maximised production and exportsto cover any short-fall in Iranian supplies. New OPEC forecasts suggest world markets will be able to cope well with lower Iranian oil supplies up to end-2013. The IEA estimates lower output and exports arecosting Iran $8bn in lost income per quarter.

According to estimates, the annual inflation rate in Iran is 45%. Since June, the price of chicken rose 35%, grains were up 55.8%, fruits up 66.6%, and vegetables up over 90%. Un-employment among the young is over 37%. The production sector is working at half its capacity.The value of the Iranian rial has fallen 45% since 2011, and there is a wave of business closings and bankruptcies due to rising energy costs and imports made expensive by the sanctions. If the blizzard of OECD legislations do pass, there would be a significant ratcheting-upof the economic war against Iran. There is unrest in several parts of Iran, including the petroleum rich province of Khuzestan. And computer viruses are affecting Iran's nuclear programme.

Abu Dhabi on July 15 began pumping crude oil exports via Fujairah through a 1.6m b/d pipeline from Habshan which will reach full capacity by end-2012. Saudi Arabia's 5m b/d East-West pipeline to Yanbu' onthe Red Sea is ready. There are more than 50m barrels of crudes in floating storage off Hormuz. So the GCC states are covered for a short-term suspension of Iran exports, which means a blockade will cause world oil prices to collapse as the IEA will have big stocks released during such a state of emergency.

Copyright 2012 Gale Group, Inc. All Rights Reserved. IAC (SM) Newsletter Database (TM). Copyright 2012 Arab Press Service.

(Originally published July 23, 2012, in APS Review Oil Market Trends.)