Balancing its ability to cause chaos in the global oil markets by closing/disrupting the Strait of Hormuz (through which flows around 35 per cent of the world’s oil supplies) with the necessity to keep its own oil exports revenues to Asia rolling in, Iran has moved exceptionally quickly on developing its Bandar-e-Jask port project. Crucially, Jask is not located in the perennially risky Strait of Hormuz but south-southeast in the Gulf of Oman. This offers a relatively risk-free shipping transit route to Iran’s key markets in the East, especially China and more latterly India, and to markets further south in Africa on a more occasional basis.
According to recent comments from Touraj Dehqani, chief executive officer of Iran’s Petroleum Engineering and Development Company (PEDEC) – the company in charge of building the project out, in tandem with the National Iranian Oil Company (NIOC) - the first full phase of crude oil exports from Jask will begin within the next 12 months, with the final build out towards this goal beginning this month. Once fully operational, this project would transfer 1 million barrels per day (bpd) of crude oil from Iran, particularly in the first stage from the cluster of resource-rich fields in the West Karoun area. In addition, Jask will also be used to move crude oil feedstock supply to petro-refineries and petrochemical plants, with a view to increasing these exports as well to Asia.
“The current logistical model in the current circumstances is not sustainable, with around 90 per cent of all of Iran’s oil for export currently loaded at Kharg Island – with most of the remaining loads going through terminals on Lavan and Sirri - making it a prime and easy target to cripple Iran’s economy,” a senior source who works closely with Iran’s Petroleum Ministry told OilPrice.com last week. “On the other side of the equation, Iran wants to be able to use the threat – or reality if it comes to that – of closing the Strait [of Hormuz] for political reasons without also completing destroying its own oil exports revenue stream,” he added. On a practical note, even before U.S. sanctions were re-imposed in May 2018, the Kharg terminal was not ideal for use by tankers as the narrowness of the Strait of Hormuz means that they have to travel extremely slowly through it. Related: EV Battery Breakthrough: Twice The Range, Five Minutes To Charge
According to the plans currently in play, a US$1.8 billion 1,000 kilometre oil pipeline will connect Guriyeh in the Shoaybiyeh-ye Gharbi Rural District, in Khuzestan Province, to Jask County, in Hormozgan Province. Once the oil is in Jask it will be stored in any of the 20 storage tanks each capable of storing 500,000 barrels of oil, in the first phase (totalling 10 million barrels) for later loading on to very large crude carriers (VLCCs) headed from the Gulf of Oman and into the Arabian Sea and then Indian Ocean. These VLCCs will be accommodated in shipping facilities costing around US$200 million in the first phase, although the plans are to expand capacity to allow for further regular shipping of various oil-adjunct and petrochemical products in particular demand in Asia.
According to the Iran source, these include gasoline, gas oil, jet fuel, sulphur, butadiene, ethylene and propylene, and mono-ethylene glycol. The director of projects at Iran’s National Petrochemical Company, Ali Mohammad Bossaqzadeh, recently said that this part of the Jask project will be run by Bakhtar Petrochemicals Holding, although ‘foreign companies’ may take part. In fact, according to the Iran source, China has offered to send as many engineers and other professionals required in such a project to Iran for as long as necessary. “The intention within 12 months of the end of next year is for Jask to have the capacity to store up to 30 million barrels, with the ability to export two to two-and-a-half million barrels of oil per day eventually if required, taking over from the Kharg facility as and when needed,” he told OilPrice.com.
Although the initial sponsor of the Jask project – sitting President Hassan Rouhani – is not constitutionally able to stand for election again next year, OilPrice.com understands that support for the project stretches across all political groupings and has the full backing as well of the Islamic Revolutionary Guards Corp (IRGC) for three key reasons. First, the non-Strait of Hormuz route means that Iran can continue to develop its crude oil business with China, and also India – under the radar if necessary – for as long as it takes for the U.S. to come back to the negotiating table over the Joint Comprehensive Plan of Action (JCPOA) ‘nuclear deal’. Second, it means that a large amount of funding (or goods-for-oil-deal imports) will flow into Iran from both China and Russia, as both have already contributed to the costs of Jask, and both have made it clear that there is more money available. Related: What’s Next For Omani Oil?
Finally, having huge oil storage capacity available just a short direct sea journey away from India means that pressure from India and Pakistan is likely to result in the final go-ahead for the construction of the Iran-India oil and gas pipeline or the Iran-Pakistan-India pipeline. “This would necessitate the stationing of Iranian security personnel – read, IRGC – on Indian soil or on Pakistani and Indian soil, which is of considerable strategic interest for the IRGC,” said the Iran source. “It also means that Iran can send oil supplies – and anything else it wants in the tankers – to the Houthi faction in Yemen to keep a constant threat to the Saudi southern flank, and also to militia groupings in Somalia and Kenya,” he underlined.
Given the cross-party consensus in Iran for the Jask project, progress has been extremely rapid, with the construction phase of the project having started only in 2018, and then having to overcome various obstacles created by the re-imposition of U.S. sanctions shortly thereafter. A key one was obtaining the necessary supplies of pipes and related engineering, which was achieved by the often-utilised Iranian fallback position of indigenising the required technology and/or calling Moscow and Beijing. Given this, according to PEDEC’s Dehqani, the full supply of pumps and related equipment to the various sites in and around Jask, will begin within the next few months.”
By Simon Watkins for Oilprice.com
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This is no idle threat since nearly 19 million barrels a day (mbd) of oil traffic, a fifth of the global oil trade and a third of global LNG supplies, pass every day through this most vital chokepoint. A closure of the Strait for a relatively lengthy period could precipitate a serious global oil crisis with oil prices probably hitting $120 a barrel if not even higher. At its narrowest point, the Strait of Hormuz is only 21 miles wide.
All the Gulf Cooperation Council members (Saudi Arabia, UAE, Kuwait, Qatar, Oman and Bahrain) and also Iraq and Iran with the exception of the UAE, Oman and to some extent Saudi Arabia will be affected seriously by any closure of the Strait of Hormuz.
Saudi Arabia and the UAE each have pipelines that have the capability to circumvent the Strait of Hormuz, but by and large these options are operating way below capacity.
However, were Iran to close the Strait of Hormuz at this moment, its crude oil exports would cease since it has no route currently other than the Strait. Balancing its ability to cause chaos in the global oil markets by closing/disrupting the Strait of Hormuz with the necessity to keep its own oil exports revenues to Asia rolling in, Iran has moved exceptionally quickly on developing its Bandar-e-Jask port project.
Crucially, Jask is located in the southeast of Iran on the Gulf of Oman. This offers a relatively risk-free shipping transit route to Iran’s key markets in the East, especially China and India.
The building of Jask will start this month with crude oil exports from Jask beginning 12 months later.It will be able to initially export up to 1.0 mbd of Iranian crude.
Iran has spent several decades mulling over plans to build out oil export capacity on its southeastern coast beyond the Strait of Hormuz in the event of disruption at its main terminal at Kharg Island inside the Persian Gulf. Iran launched a tender last year to build a section of the pipeline, which it hopes will be online in the early 2020s.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London