The Precarious Persian Gulf

The abduction of British sailors, U.S. military exercises in the Persian Gulf, the unstable price of oil and UN sanctions have made only one thing certain: The crisis in Iran has deepened further since last Friday.

Iran's confrontation with the UK and the United States has seriously escalated. On March 28, the UK presented evidence it claims proves the 15 captured sailors were in Iraqi waters, and the UK has frozen diplomatic relations with Iran. On March 27, the United States began military exercises in the Persian Gulf, giving rise to market rumors of hostilities that likely caused a short $5 hike in oil prices. Regardless of whether all the sailors are released soon, tension and market jitters will likely remain high in coming weeks.

The British Ministry of Defense stated that global positioning system (GPS) data proves the sailors were 1.7 nautical miles inside Iraqi territorial waters when they were abducted by Iranian Revolutionary Guard troops. The UK claims one of the two small crafts that intercepted an Indian-flagged vessel was carrying a GPS device. According to UK officials, Iran provided contradictory evidence in diplomatic exchanges over the weekend-first providing coordinates that in fact located the British troops in Iraqi waters, then revising its position to locate them in Iranian waters. Foreign Minister Margaret Beckett stated that the UK had frozen all bilateral activities with Iran, except contacts directly related to the sailors. Iranian Foreign Minister Manouchehr Mottaki has announced that the sole woman being held would be released by March 29.

Many maritime boundaries in the area are unclear and contested. However, according to press reports, the incident occurred in the mouth of the Shatt al-Arab waterway, not in the waterway itself. In the mouth, the boundaries are clear-though some reports indicate the abduction took place near where demarcation is less clear. However, the UK-provided evidence convincingly shows that both the boarding crafts and the mother ship, HMS Cornwall, were in Iraqi waters when the sailors were abducted.

Iranian goals remain unclear. Certainly, Tehran's top leadership chose to send a message to the international community the day before additional UN sanctions were imposed. Some analysts have suggested that the radical Revolutionary Guard is in charge of the operation; that is inconceivable-only Supreme Leader Ali Khamenei could preside over such a provocative incident. More generally, Tehran likely seeks to gain leverage in the broader geopolitical and nuclear disputes. Since January, the United States has gained momentum by detaining Iranians in Iraq, placing two carrier groups in the region and imposing a range of UN and direct sanctions. The abduction is probably intended to level the playing field, and the sailors will be released when Tehran believes that has been achieved.

Adding to tensions, on 27 March the United States began a major military exercise in the Gulf involving both carrier groups. This gave rise to rumors of US-Iranian hostilities and likely triggered the short but dramatic spike in oil prices. The exercise is consistent with U.S. policy since January-to intimidate, deter and contain Iran.

Since the abduction of the British sailors, WTI (West Texas Intermediate Crude Oil) was up $1.24 through market close on March 27. The UK crisis and U.S. exercises will apply upward pressure for their duration. In addition, Eurasia Group sources report that Iran continues to make progress on its nuclear program. The February 22 IAEA report disclosed that Iran has installed 656 centrifuges underground at Natanz; that number is apparently far greater now, and the market will react with more jitters when the new number becomes public. The crisis in Iran has deepened further since last Friday.

Cliff Kupchan is director, Europe and Eurasia, at the Eurasia Group.