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The move could trigger military conflict with economies dependent on Gulf oil. The threat alone sent oil prices rising.
Western tensions with Iran have increased since a Nov. 8 report by the U.N. nuclear watchdog saying Tehran appears to have worked on designing an atomic bomb and may still be pursuing research to that end. Iran strongly denies this and says it is developing nuclear energy for peaceful purposes.
Iran has defiantly expanded nuclear activity despite four rounds of U.N. sanctions meted out since 2006 over its refusal to suspend sensitive uranium enrichment and open up to United Nations nuclear inspectors and investigators.
Many diplomats and analysts believe only sanctions targeting Iran's lifeblood oil sector might be painful enough to make it change course, but Russia and China - big trade partners of Tehran - have blocked such a U.N. move.
Iran's warning on Tuesday came three weeks after EU foreign ministers decided to tighten sanctions over the U.N. watchdog report and laid out plans for a possible embargo of oil from the world's No. 5 crude exporter.
"If they (the West) impose sanctions on Iran's oil exports, then even one drop of oil cannot flow from the Strait of Hormuz," the official Iranian news agency IRNA quoted Iran's First Vice President Mohammad Reza Rahimi as saying.
Rahimi's remarks coincided with a 10-day Iranian naval exercise in the Strait and nearby waters, a show of military force that began on Saturday and coincides with the heightened Western pressure on Tehran.
"Our enemies will give up on their plots against Iran only if we give them a firm and strong lesson," Rahimi said.
Sanctions meeting in January
EU ministers said on December 1 that a decision on further sanctions would be taken no later than their January meeting but left open the idea of an embargo on Iranian oil.
Countries in the 27-member European Union take 450,000 barrels per day of Iranian oil, about 18 percent of the Islamic Republic's exports, much of which go to China and India. EU officials declined to comment on Tuesday.
About a third of all sea-borne oil was shipped through the Strait of Hormuz in 2009, according to the U.S. Energy Information Administration (EIA), and U.S. warships patrol the area to ensure safe passage.
Most of the crude exported from Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq - together with nearly all the liquefied natural gas from lead exporter Qatar - must slip through the Strait of Hormuz, a 4-mile wide shipping channel between Oman and Iran.
Iran has also hinted it could hit Israel and U.S. interests in the Gulf in response to any military strike on its nuclear installations - a last resort option hinted at by Washington and the Jewish state.
However, some analysts say Iran would think hard about sealing off the Strait since it could suffer just as much economically as Western crude importers, and could kindle war with militarily superior big powers.
"To me, if Iran did that it would be a suicidal act by the regime. Even its friends would be its enemies," said Phil Flynn, analyst at PFG Best Research in Chicago.
Saudis may replace Iran oil
Industry sources said on Tuesday No. 1 oil exporter Saudi Arabia and other Gulf OPEC states were ready to replace Iranian oil if further sanctions halt Iranian crude exports to Europe.
Iranian Oil Minister Rostam Qasemi had said that Saudi Arabia had promised not to replace Iranian crude if sanctions were imposed.
"No promise was made to Iran. It's very unlikely that Saudi Arabia would not fill a demand gap if sanctions are placed," an industry source familiar with the matter said.
Gulf delegates from the Organization of the Petroleum Exporting Countries (OPEC) said an Iranian threat to close the Strait of Hormuz would harm Tehran as well as the major regional producers that also use the world's most vital oil export channel.
Oil prices spiked Tuesday, fueled by fears of supply disruptions and Iranian naval exercises in a crucial oil shipping route, with gains capped by simmering euro zone debt concerns.
Crude oil futures jumped nearly a dollar to over $109 a barrel after the Iranian threat, but a Gulf OPEC delegate said the effect could be temporary. "For now, any move in the oil price is short-term, as I don't see Iran actually going ahead with the threat," the delegate told Reuters.
The industry source said that in the case of EU sanctions, Iran would most likely export more of its crude to Asia, while Gulf states would divert their exports to Europe to fill the gap until the market is balanced again.
A prominent analyst said that if Iran did manage to shut down the Strait of Hormuz, the ensuing spike in oil prices could wreck the global economy, so the United States was likely to intervene to foil such a blockade in the first place.
About the Strait of Hormuz:
Location: The most important oil transit channel in the world is a narrow bend of water separating Oman and Iran. It connects the biggest Gulf oil producers, such as Saudi Arabia, with the Gulf of Oman and the Arabian Sea. At its narrowest point, the strait is only 21 miles across and consists of 2-mile-wide navigable channels for inbound and outbound shipping and a 2-mile-wide buffer zone.
Oil shipments
- Flows through the Strait in 2009 were roughly 33 percent of all seaborne traded oil (40 percent in 2008), or 17 percent of oil traded worldwide, according to the U.S. Energy Information Administration (EIA).
- Some 15.5 million barrels passed through in 2009, according to the U.S. EIA. U.S. warships patrol the area to ensure the safe passage.
- The bulk of the oil exported through the Strait of Hormuz travels to Asia, the United States and Western Europe. About three-quarters of Japan's oil imports and about 50 percent of China's pass through this strait.
- An additional 2 million barrels of oil products, including fuel oil, are exported through the passage daily, as well as liquefied natural gas (LNG).
Could you imagine doing something so stupid as closing this strait? This would be the event that would ignite a full scale war. It does not look like 2012 is going to be any better than 2011. If Iran switched to Thorium Nuclear Energy then there would be less concern.