U.S. Raises Alarm Over Oil Lanes

By JULIAN E. BARNES and TENNILLE TRACY

WASHINGTON—Iran said it will launch missiles and torpedoes as part of an ongoing naval drill in the Persian Gulf, an Iranian news agency reported, following a week of saber-rattling in which Tehran threatened to close some of the world's most vital oil-shipping lanes.

Tehran said this week it could easlily block oil deliveries through the Strait of Hormuz in the Gulf if the U.S. and other nations impose further sanctions on it.

Such threats could be largely bluster. But they also speak to the degree to which Iran has chafed at recent U.S. and European Union threats to impose sanctions on Iran's central bank to punish Tehran for its alleged pursuit of nuclear weapons. Iran denies such allegations.

Underscoring the stakes, the U.S. Energy Information Administration said Friday that more oil passed through the Persian Gulf's Strait of Hormuz in 2011 than in previous years and that any blockage could lead to "substantial increases" in energy costs.

In data released Friday, EIA officials said an average of nearly 17 million barrels of oil moved daily through the strait this year, up from around 15.5 million barrels in 2009 and 2010. The strait, which the agency called "the world's most important oil chokepoint," carried about 20% of all oil traded world-wide and about 35% of all seaborne-traded oil, it said.

Tehran's threats over the Strait is one factor behind the recent rise of oil prices to around $99 a barrel Friday, from a low of around $76 a barrel in October.

Contributing to the friction between Washington and Tehran, Iran is conducting 10 days of war games in the southern Persian Gulf. On Friday, the semiofficial Fars News Agency quoted an Iranian Navy deputy commander as saying forces will "launch advanced short-range, mid-range and long-range missiles and also smart torpedoes." The agency highlighted several new weapons displayed by Iran in recent months including the Qader anti-ship cruise missile, which Iran claims has a range of 124 miles, and Valfajr torpedoes, a 485-pound weapon that Iran says can be launched by its subs and can destroy large warships.

Pentagon officials declined Friday to comment on the threatened tests. U.S. defense officials said Iran had a right to conduct military exercises in the international waters of the Gulf.

U.S. military officers view Iran's current long-range missile capability skeptically. An explosion at a missile facility in November was a major setback to Iran's long-range missile program, according to U.S. officials. A test of the long-range missiles could be an attempt by Tehran to assert that it retains the ability to deploy such weapons.

U.S. officials see Iran's short- and medium-range missiles as a greater immediate threat. Such missiles could be used to target American naval forces. U.S. ships approaching Iran would be forced to proceed carefully.

U.S. officials have made clear that any move by Iran to close the Strait of Hormuz would be countered vigorously, including through the use of military force to keep the chokepoint open to commercial traffic. Much of the oil produced in Saudi Arabia and other Persian Gulf nations must pass through the strait to reach overseas markets.

At its narrowest point, the Strait of Hormuz is 21 miles wide and deep enough to handle the largest oil tankers. In 2011, an average of 14 oil tankers moved through every day, with a corresponding number of empty tankers entering to pick up new shipments, the EIA said.

The U.S. Navy has one battle group in the Persian Gulf, led by the USS John C. Stennis aircraft carrier. The Air Force has fighter planes in Kuwait and Qatar. While U.S. forces have pulled out of Iraq, thousands of service members are in Kuwait, Qatar and the United Arab Emirates, as well as Bahrain, the headquarters of the U.S. Fifth Fleet.

The National Defense Authorization Act, which President Barack Obama is expected to sign soon, penalizes foreign financial institutions that do business with Iran's central bank, a measure aimed at making it more difficult for Tehran to sell its oil.

Some U.S. officials believe that Iran will view any attempt to sanction its central bank as an act of war, and they warn of a possible conflict breaking out in the Persian Gulf. Other analysts say Iran is unlikely to try to close the strait, largely because that would damage its own already-struggling economy.

On Thursday, State Department spokeswoman Victoria Nuland said "the ratcheting up of pressure" on Iran with sanctions "is pinching in a way that is causing them to lash out."

The majority of shipments moving through the strait are bound for Asian markets. If the Strait of Hormuz were to close, oil deliveries could be rerouted via pipelines to the Red Sea and Mediterranean Sea, said the Energy Information Administration, which is part of the U.S. Department of Energy. That would raise transportation costs, it said.

Write to Tennille Tracy at tennille.tracy@dowjones.com