The specter of the Strait of Hormuz being blocked, in one eventuality or the other, keeps haunting the energy fraternity as soon as temperature starts to rise in and around the Gulf. West seems perturbed about any such possibility and one could feel the anxiety in private conversations with energy analysts while in the western capitals. Somehow, the discussion returns to the impact of any such eventuality on the global crude balance. Blocking the Strait of Hormuz would “probably be the biggest single energy security risk to the world,” some argue.
The Strait is a major alley for tankers taking the crude from the region. About 17 million barrels of crude moved through the Strait of Hormuz daily in 2006, representing more than a fifth of the total global supply and two-fifths of the world’s seaborne crude. The crude is taken in single file through the two-mile wide shipping lanes by a steady stream of tanker traffic. Currently the tanker traffic across this choke point during the navigable part of the day tends to be sufficiently heavy, with no more than six minutes between each vessel. This is enough to cause concerns and alarms.
With the global consumption projected to go up, shipment across the narrow Strait is also bound to go up in the coming years. As per the IEA’s 2005 World Energy Outlook, exports from the region could go up to as much as 32 million barrels a day by 2030, as the global crude dependence on the region is bound to rise.
A number of projects to bypass the Strait has been discussed in past. Some recent reports say that the interests in such projects are going up. Many of these plans center on the UAE’s eastern coast of Fujairah, on the open-ocean side of the Hormuz choke point. In preparation of the anticipated developments, Fujairah is expanding the size of its port, adding 16 tanker berths. Plans are also being chalked out to transform this expanded large Fujairah port into the world’s biggest liquefied natural gas storage and trading hub too. A wave of new oil and refined product storage capacity of up to 25 million barrels is now being planned at Fujairah. Abu Dhabi is reportedly also pursuing the prospect of a refinery in the area.
Dubai has also proposed building a $2 billion LNG storage plant in Fujairah.
Cramped by the Hajar mountain range, Fujairah has also earmarked an area near its port for land reclamation for industrial projects, extending about one-third of a mile into the Gulf of Oman, sitting on the other side of the Strait from the Gulf — and up the coast for 2.5 miles.
A 1.5 million barrels per day pipeline has already been planned to carry crude from the onshore Habshan oilfield in Abu Dhabi to Fujairah, bypassing the strategic Hormuz. This 48 -inch diameter pipeline is expected to be ready by 2009. Work on this project may begin within the year and some reports say that the proposed 350 km long pipeline may ultimately link the Ras Tanura oil terminal in Saudi Arabia to Fujairah too, passing on its way via the Habshan oilfield in Abu Dhabi.
The Dubai Mercantile Exchange is also endeavoring to create new crude benchmark based on Omani crude, shipping from the eastern port of Mina Al-Fahad, on the east coast outside the Strait of Hormuz. This would allow future trading to continue even if the Strait were locked and supplies from the Gulf were cut off, some analysts maintain.
There have been reports in the regional press of other projects being under consideration too. A lot has been said about the Trans-Arabia Oil Pipeline project. The first of these, if it at all comes to fruition, will carry almost 5 million barrels of oil a day, running south from Ras Tanura to Yemen’s oil port of Mukallah. Another similar project being discussed off and on is the west to Red Sea port and Yanbu. There have been hints that the new strong security apparatus for securing the Saudi oil installations as announced by Prince Naif a couple of months back would also be responsible for securing this pipeline, if and when this gets operational.
Under the proposals there also exist plans to reroute the Southern Iraqi oil from the Shatt Al-Arab outlet to the Gulf and then flowing into pipes crossing the Iraqi desert into the Kingdom. In fact a network of pipelines has been discussed under the Trans-Arabia Oil Pipeline project.
This Trans-Arabia project is not something new. Back in 1950s there were arrangements to transport Saudi oil to a Mediterranean outlet for onward shipment to Europe and the eastern United States. But then the Palestinian conflict in 1946 forced to seek alternative route that went through Jordan, over the Golan Heights and up to the northern Lebanese port of Tripoli on the Mediterranean. Following the 1967 war, the section running across Golan had to be discontinued.
All these projects would cost billions of dollars. Would Iran be ready to commit suicide by blocking the Strait. To consider that Iran would be ready to cut its lifeline appears a little too disturbing and impractical, most analysts feel.
