A leading member of Iranian parliament’s National Security Committee said that the military was set to practice its ability to close the Gulf to shipping at the narrow Strait of Hormuz, the most important oil transit channel in the world, but there was no official confirmation.
By volume, the Strait of Hormuz leading out of the Persian Gulf and the Strait of Malacca linking the Indian and Pacific Oceans are the two most strategic chokepoints.
The global energy market is dependent upon reliable transport. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs. In addition, chokepoints leave oil tankers vulnerable to theft from pirates, terrorist attacks, and political unrest in the form of wars or hostilities as well as shipping accidents which can lead to disastrous oil spills.
Located between Oman and Iran, the Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. Hormuz is the world’s most important oil chokepoint due to its daily oil flow of 15.5 million barrels in 2009, down from a peak of 17 million bbl/d in 2008. Flows through the Strait in 2009 are roughly 33 percent of all seaborne traded oil (40 percent in 2008), or 17 percent of oil traded worldwide.
On average, 13 crude oil tankers per day passed eastbound through the Strait in 2009 (compared with an average of 18 in 2007-2008), with a corresponding amount of empty tankers entering westbound to pick up new cargos. More than 75 percent of these crude oil exports went to Asian markets, with Japan, India, South Korea, and China representing the largest destinations.
At its narrowest point, the Strait is 21 miles wide, but the width of the shipping lane in either direction is only two miles, separated by a two-mile buffer zone. The Strait is deep and wide enough to handle the world’s largest crude oil tankers, with about two-thirds of oil shipments carried by tankers in excess of 150,000 deadweight tons.
Closure of the Strait of Hormuz would require the use of longer alternate routes at increased transportation costs. Alternate routes include the 745 mile long Petroline, also known as the East-West Pipeline, across Saudi Arabia from Abqaiq to the Red Sea. The East-West Pipeline has a nameplate capacity of 4.8 million bbl/d. The Abqaiq-Yanbu natural gas liquids pipeline, which runs parallel to the Petroline to the Red Sea, has a 290,000-bbl/d capacity.
Last month Iran’s energy minister told Al Jazeera television last month that Tehran could use oil as a political tool in the event of any future conflict over its nuclear program.
Oil surged nearly $4 a barrel on Tuesday in a furious burst of trading that traders struggled to explain, citing renewed jitters over Iran’s comments. Brent and U.S. crude prices shot up quickly briefly adding $3 on to earlier gains as volumes surged.
This sudden rise in oil prices could effectively stop the slow growth witnessed recently in the US. The US economy is fragile and any increased expense would hurt the consumer, as well as the manufacturer. Increases in oil prices lead almost immediately to increases at the pump. This could cause inflation to surge.
Even though the US, this past fall became an oil exported as opposed to an oil importer, any price increases serve to destabilize the markets and compound nervous investors. An increase in oil prices would also hurt the EU and the UK. Iran has played their trump card, now we have to wait to see exactly how government sanctions and embargo are implemented against Iran over their nuclear program.