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.
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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