Here's something that may alarm the oil and gas industry: Iran has given the Islamic Revolutionary Guard Corps command over naval operations in the Persian Gulf and Strait of Hormuz.
That's according to a report by the US Office of Naval Intelligence, which says the Iranians have undertaken the move as of a strategy to block international access to vital sea lanes in the event of a war.
As a reminder, oil movements through the strait account for 40% of all seaborne oil traded in the world, according to the US Energy Information Administration.
EIA also predicts that oil exports passing through the strait will reach 30-34 million b/d by 2020 from the current 15 million b/d.
Adverse impacts
Any closure of the strait would severely impact the industrialized world as most of the oil exported through the waterway travels to the US, Western Europe, and Asia. In fact, about 75% of Japan's oil needs pass through the strait.
While consumers would be hardest hit by any closure, so too would producers as an estimated 90% of oil exported from gulf exporters such as Saudi Arabia, Kuwait, and the UAE is carried on oil tankers through the strait.
Then too, some 2 million b/d of oil products, including fuel oil, are exported through the strait along with LNG, with exports from Qatar alone reaching 31 million tonnes/year.
The ONI report notes that Iran also relies on the strait to transport most of its oil exports, and that it would incur risks by imposing a blockade on the area.
"Closing the Strait of Hormuz would cause Iran tremendous economic damage, and therefore Iran would probably not undertake a closure lightly," ONI said, adding that "given the importance of the strait, disrupting traffic flow or even threatening to do so may be an effective tool for Iran."
Price surge
The ONI report follows an earlier research note by analyst Raymond James & Associates Inc. that said oil prices may surge to a record if conflict over Iran's uranium enrichment leads the oil producer to slash exports or block the Strait of Hormuz.
In October, Raymond James analysts saw a greater than 50% chance of military strikes against Iran over the next year, a scenario they say would prompt Iran to cut off oil exports and potentially block the strait.
"The market is aware of this, but seems to be factoring in extremely low probability it will happen," said Raymond James analyst Pavel Molchanov, who also noted that if Iran is attacked, oil prices could soar to a record higher than the $147/bbl they reached in July 2008.
As one of US Central Command's key missions in the gulf is to ensure the free flow of oil and energy supplies, a confrontation could well be shaping up. Let's hope it is merely a war of words.
More Brand Name Current Issue Articles
More Brand Name Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com
