More than a third of the world's oil flows through this narrow passageway called the Strait of Hormuz. But now, the channel is emerging as a bargaining chip in a war of threats, increasing in intensity. The latest, the U.S. military says it will not tolerate any Iranian disruptions of oil shipments in the Strait of Hormuz. The Bahrain-based U.S. Fifith Fleet told VOA that the navy is ready to "counter malevolent actions" to ensure freedom of navigation.

The threats and counterthreats come at a time when the Iranian navy is conducting war exercises in the strait and inevitably coming close to U.S warships. Saeed Leilaz, a political analyst based in Tehran, says that magnifies the threat. "Two years ago, Iran's Supreme Leader had the Revolutionary Guards protect the Strait of Hormuz. But regular naval forces are conducting the current war games," he said.

The threats emerged because European Union ministers are soon to decide on a boycott of Iranian oil, in response to the country's nuclear program. Iran says its uranium enrichment program is for civilian purposes.

Patrick Clawson studies Iranian issues at The Washington Institute. "Trying to close the strait of Hormuz is really a dumb thing for Iran to do. It's contrary to their interests because it would hurt their income, it would unite all of the oil importing countries in the world against them, it would bring a great many navies there to act against what Iran is doing," he said.

But given Iran's past actions, Clawson says it's a real possibility. If so, oil could possibly bypass the strait through a pipeline across the United Arab Emirates. But, it could take several weeks to work out any alternatives.

In the meantime, the blustering affects the price of oil. Prices retreated Wednesday after an initial spike, but analysts say the fluid situation could cause continued instability in 2012 prices.