Saber-rattling between the US and Iran revives an old worry: What happens if the Strait of Hormuz closes?
Iranian threats to the strait represented bluster before US sanctions slashed Iranian exports, so far this year by 1 million b/d. Until then, Iran needed clear passage to the Gulf of Oman as much as anyone.
Now, with sanctions choking exports, it has less to lose from oil-trade disruption.
At this writing, following attacks attributed to Iran on tankers, Saudi Arabia’s East-West Pipeline, and a US military drone, direct conflict seems perilously near.
Oil and gas markets therefore must worry about closure of the waterway through which pass 14.5 million b/d of crude oil, 4 million b/d of oil products, and 80 million tonnes/year of LNG—about 25% each of global oil and gas trade.
Oil alternatives exist: the 5 million b/d East-West line between Ras Tanura and Yanbu on the Red Sea and the 1.5 million b/d Abu Dhabi Crude Oil Pipeline between Habshan oil field and Fujairah on the Gulf of Oman.
In a June 20 energy brief, Facts Global Energy estimated spare capacities at 3 million b/d in the Saudi system and 1 million b/d in Abu Dhabi’s pipeline.
FGE pointed out, however, that the pipelines are vulnerable to attack, as the East-West incident made clear. Attacks on tankers off Fujairah demonstrated jeopardy for oil delivered there. And vessels bound for Asia from Yanbu would have to transit the Bab al Mandab between the Red Sea and Gulf of Aden, approaching from perilous Yemeni waters.
And FGE estimated that members of the International Energy Agency hold strategic and compulsory stocks totaling 2 billion bbl of crude and 700 million bbl of products.
Alternate routes and emergency inventories thus would moderate but not preclude damage to the global economy from closure of the Strait of Hormuz.
The event, therefore, would provoke a military response swift enough to shorten the transport constriction and strong enough to prevent its recurrence.
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