Thu, Jul 26, 2018 - Page 9 News List

Trump’s war of words with Iran shines light on vital oil route

By Anthony DiPaola  /  Bloomberg

The war of words between US President Donald Trump and Iranian President Hassan Rouhani over oil exports and sanctions is shining a spotlight on the narrow, twisting conduit for about 30 percent of the world’s seaborne-traded crude.

The Middle East’s biggest oil exporters rely on the Strait of Hormuz, the passage linking the Persian Gulf with global waterways, for the vast majority of their crude shipments — about 17.5 million barrels a day.

Should a regional conflict block that bottleneck, three of the largest Gulf Arab crude producers have pipeline networks that would potentially enable them to export as much as 4.1 million barrels via alternative outlets, Bloomberg calculations showed.

Even so, this amount of oil, if sent by pipeline, would be less than one-quarter of the total that typically sails on tankers through Hormuz.

Iran has renewed threats to block the Strait since the US announced its plan to reimpose sanctions and cut shipments from OPEC’s third-largest producer to zero from about 2.5 million barrels a day.

Trump on Twitter warned Rouhani to “never, ever threaten the United States” hours after Rouhani warned the US against endangering Iranian oil exports and called for improved relations with neighbors, including rival Saudi Arabia.

Saudi Arabia and the United Arab Emirates (UAE), two of the US’ closest friends in the Middle East and geopolitical adversaries of Iran, both have pipeline networks that bypass Hormuz.

Iraq has one operational pipeline to a Turkish port on the Mediterranean Sea.

All four nations are members of OPEC and depend on the Strait to export their oil.

The total capacity of pipelines that could be used instead of Hormuz is about 7.1 million barrels a day, although some of that capacity is taken up by oil sent to export markets or domestic refineries.

Saudi Arabia and Abu Dhabi, the capital of the UAE, are each using less than half of the respective pipeline capacities, while a link from northern Iraq is about two-thirds utilized, Bloomberg data showed.

“Actual export capacity that avoids the Strait is limited,” said Jaap Meijer, managing director and head of equity research at investment bank Arqaam Capital Ltd in Dubai.

Any attempt to close shipping lanes out of the Gulf and into Hormuz would likely cause oil prices to spike, he said.

Benchmark Brent crude yesterday rose 0.6 percent to US$73.89 a barrel, extending this year’s gain.

State oil giant Saudi Arabian Oil Co (Aramco) can pump as much as 5 million barrels a day to the kingdom’s Red Sea coast via the 1,200km East-West pipeline, built in the 1980s to transport crude from eastern fields close to the Persian Gulf.

Aramco has this year exported an average of 650,000 barrels a day from the Red Sea port of Yanbu, ship-tracking data showed. The company also operates four refineries that can process as much as 1.4 million barrels a day.

Supplies to the refineries and shipments to Yanbu indicate that Aramco is using at least 2.05 million barrels a day of capacity along the East-West pipeline.

Abu Dhabi, with about 6 percent of the world’s crude, exports some of its oil through a 1.5 million barrel-a-day pipeline to the Indian Ocean port of Fujairah. The link spans about 400km from Abu Dhabi’s desert oil fields and across the Hajar Mountains to Fujairah, which lies outside the Strait of Hormuz.

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