In the last decade, the humble Strait of Hormuz has seen a fifth of the world's oil supply, a third of all liquefied natural gas (LNG), and a third of all seaborne imports and exports in the world pass through its narrow waters. The oil tanker-choked passage is located in a strategic and geopolitical hotspot between Iran and the Arabian Peninsula, linking the Persian Gulf on the west side to the Gulf of Oman and the Arabian Sea on the southeast end. Many OPEC nations rely on the Strait for nearly all of their oil exports, and the world's largest LNG exporter, Qatar, relies on the waterway for nearly all of its gas trade. The entire strait, upon which the global trade economy hinges, is a mere 35 to 60 miles (55 to 95 km) wide. It's a precarious situation: the closure of this one essential passage in the midst of a geopolitically fraught region could and would disrupt the economic machinations of the entire world and bring a huge portion of the oil and gas industry to a screeching halt. Over the past decade, there has been no shortage of conflicts and tensions in these heavily trafficked waters, but tensions have been noticeably heating up lately, creating ripples of unease through the energy sector, in large part thanks to the United States' sanctions against Iran, halting the nation's oil exports. Iran has used its positioning on the Strait of Hormuz as leverage, threatening to disrupt the flow of oil shipments through the channel in retaliation against the economic sanctions that are battering its economy. Charged with protecting commercial shipping through the strait, the U.S. Fifth Fleet is based in nearby Bahrain.
The complicated politics in this essential oil artery involve a veritable model UN of characters. In one instance of impressively complicated tensions in the Strait of Hormuz this summer, the United States military reported that Iranian forces boarded an Liberian-flagged oil tanker in retaliation against a Greek tanker owner carrying fuel to Venezuela.
The Strait of Hormuz is the most politically important and crowded waterway for the oil industry, but the entire region has been observing escalating tensions in recent months. Just this Monday, an explosion from an undisclosed or unknown "external source" hit an oil tanker off of Saudi Arabia's Red Sea coast near to the key port city of Jeddah. Due to this kind of hyper-complex and geopolitically fraught volatility in the region, the United States has been strategizing ways to make the Strait of Hormuz a less essential passage for the nation's oil trade. Outgoing U.S. Energy Secretary Dan Brouillette has suggested that the answer for moving Middle Eastern oil in the future may rely on pipelines rather than tankers.
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There is already some established pipeline infrastructure in the region: "The Abu Dhabi Crude Oil Pipeline has a capacity of 1.5 million barrels per day and carries the bulk of its production to the UAE port of Fujairah on the Indian Ocean," reports CNBC. "Saudi Arabia already exports some of its oil using a 745 mile-long pipeline that runs from its key production facilities in the east to the Red Sea port city of Yanbu in the west. A major expansion of its capacity is already underway."
While Brouillette contends that ramping up pipeline capacity and diverting more oil away from the Strait of Hormuz and through other channels would make security less of a concern, other experts say that there is no perfect solution, and pipelines also have their own vulnerabilities. Having a diversity of routes, however, with both shipping routes and pipelines, creates a failsafe if one of those transportation methods is compromised.
Brouillette made a visit to Abu Dhabi, the capital city of the United Arab Emirates, to meet with officials from the UAE, Bahrain and Israel in order to discuss the increasingly pressing issue of regional energy security. This latest round of discussions is an extension of September's Abraham Accords, which established and officially enacted diplomatic relations between Israel and several key Arab states.
"With just over four weeks remaining in the role, Brouillette is making a final lap through the region as the Trump era of strong-arm oil diplomacy comes to an end in the U.S.," reports CNBC. His incoming replacement Jennifer Granholm, who "is widely seen as a climate hawk" will almost certainly handle diplomacy in the region differently, leaving Middle East allies uncertain of the future.
By Haley Zaremba for Oilprice.com
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Comments
The six pipelines are the Saudi Petroline, UAE’s pipeline to Fujairah, Iran’s Goureh-Jask pipeline (when completed), Egypt’s SUMED pipeline, Iraq’s ITP (when repaired) and Israel’s Eilat-Ashkelon pipeline (when fully rehabilitated and expanded).
Oil exports from Iraq, Iran, Kuwait, Bahrain, Qatar (including large volumes of LNG exports), the UAE and Saudi Arabia must pass through the Strait.
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's 750-mile Petroline (East-West Pipeline), runs across Saudi Arabia from the oil fields in the East to Yanbu port on the Red Sea in the West. The Petroline has currently a capacity of 4.8 mbd but its current throughput is about 1.9 mbd, which means that 2.9 mbd of capacity sits idle. Saudi Aramco already has plans to boost its capacity to 7 mbd.
UAE has the Abu Dhabi Crude Oil Pipeline, which has a capacity of 1.5 mbd. The pipeline runs from the Habshan onshore field in Abu Dhabi to Fujairah on the Gulf of Oman, bypassing Hormuz. About 0.5 mbd is running through that line, with 1 mbd of unused capacity.
As for Iraq, it is now totally dependent on the Strait of Hormuz for its oil exports since the Iraqi-Turkish pipeline (ITP) transporting Iraqi oil from Kirkuk to Ceyhan on the Turkish coast on the Mediterranean is virtually out of action.
Iran is building an onshore oil pipeline known as the Goureh-Jask expected to be completed by March 2021. The 684-mile long oil pipeline with a capacity of 1 mbd runs from the Goureh oil terminal in the northwest to the port terminal at Jask on the Gulf of Oman.
Israel has recently rehabilitated the Eilat-Ashkelon oil pipeline (EAP). The pipeline was completed in 1968 with the support of the pro-western Shah of Iran. However, the Islamic Revolution of 1979 cut oil supplies from Iran that traversed the country.
Moreover, Israel is considering expanding its capacity beyond the current 600,000 barrels a day (b/d) and extending it 700 kilometres southeast to the Saudi oil terminal at Yanbu on the Red Sea either under the sea or overland using its formal relations with the United Arab Emirates to promote the plan.
While the EAP could enable Saudi oil shipments to by-pass both the Straits of Hormuz and Bab Al-Mandeb and the Suez Canal and be loaded at Yanbu and transported to the Mediterranean, it competes with the Suez Canal and the Egypt’s SUMED pipeline, which also by-passes the Canal and connects the Mediterranean to the Red Sea.
This will certainly benefit Israel economically in terms of transit revenue and strategically, but it will reduce Egypt’s revenue from the Suez Canal and deprive it of an estimated 12%-17% of the oil trade transiting through the Suez.
While both Saudi Arabia and Israel share enmity towards Iran, formalizing ties between them could be hard to achieve as it will provoke popular anger and could prove incredibly unpopular.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London