Strait of Hormuz: The chokepoint of global oil supply?

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Hormuz

Jawad Falak |

The Straits of Hormuz has taken center stage in world affairs due to the increase in American Iranian tensions. Iranian President Hassan Rouhani gave a statement on his website that was taken by many as a threat to shut down the important transit point. The statement, “the Americans have claimed they want to completely stop Iran’s oil exports. They don’t understand the meaning of this statement, because it has no meaning for Iranian oil not to be exported, while the region’s oil is exported.”, was followed by the confirmation of an Iranian Revolutionary Guards Commander who was optimistic of fulfilling his president’s order.

The closure of the Strait of Hormuz — which is a crucial energy transit point for the world — would not only cause a massive fluctuation in the global energy market, it could also engage America, China, Iran, India and Pakistan.

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Importance

The Strait of Hormuz is a strategically important strait or narrow strip of water that links the Persian Gulf with the Arabian Sea and the Gulf of Oman (map). The strait is only 21 to 60 miles (33 to 95 km) wide throughout its length. The Strait of Hormuz is important because it is a geographic chokepoint and a main artery for the transport of oil from the Middle East. Iran and Oman are the countries nearest to the Strait of Hormuz and share territorial rights over the waters.

It Hormuz is among the three major chokepoints for the Middle East oil trade. The other two are Bab El Mandeb and the Suez Canal. According to the Business Insider, the Bab el-Mandeb strait between Yemen and Djibouti sees about 4.2% of all seaborne-traded crude oil and other liquids, the Suez Canal accounts for 2.2% while the Straits of Hormuz accounts for 30% of all seaborne-traded crude oil and other liquids.

The U.S. Energy Information Administration estimates a record 18.5 million barrels per day of sea-borne oil that passed through the Strait in 2016, a 9 percent increase on flows in 2015, which accounted for 30p percent of all sea-borne traded crude oil and other liquids during the year. Sea-borne crude and condensate flows transiting the Strait are estimated at around 17.2 million bpd in 2017 and around 17.4 million bpd in the first half of 2018, according to the oil analytics firm Vortexa.

Most of the crude exported from Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq passes through it. It is also the route for nearly all the liquefied natural gas (LNG) from lead exporter Qatar. Japan, China, India and South Korea are the biggest buyers of the energy trade passing through this chokepoint.

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Several alternatives are potentially available to move oil from the Persian Gulf region without transiting Hormuz, but they are limited in capacity, in many cases are not currently operating or operable, and generally engender higher transport costs and logistical challenges.

According to the Energy Information Agency (EIA) “Alternate routes include the 745-mile 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 about 5 million bbl/d, with current movements estimated at about 2 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. Additional oil could also be pumped north via the Iraq-Turkey pipeline to the port of Ceyhan on the Mediterranean Sea, but volumes have been limited by the closure of the strategic pipeline linking north and south Iraq.

The United Arab Emirates is also completing the 1.5 million bbl/d Abu Dhabi Crude Oil Pipeline that will cross the emirate of Abu Dhabi and end at the port of Fujairah just south of the Strait. Other alternate routes could include the deactivated 1.65-million bbl/d Iraqi Pipeline across Saudi Arabia (IPSA) and the deactivated 0.5 million-bbl/d Tapline to Lebanon”. This evaluation shows that the Straits of Hormuz are the most viable option for oil traveling from the Persian Gulf.

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Pakistan’s Baluchistan Province is on the Arabian Sea; and the Strait of Hormuz lies to its east, at the border with Iran. The only point of interest on the coast is the Port of Gwadar which is the center point of the China Pakistan Economic Corridor (CPEC) that is a major part of the Chinese Belt & Road Initiative (BRI).

Challenges

A closure of the Straits of Hormuz will cause challenges to Pakistan in the following spheres:

1.     Pak-Iran Relations

2.     Pak-GCC Relations

3.     Pak-China relations

Gwadar is a corridor of energy security for Pakistan as Iran has shown readiness to establish a $4 billion oil refinery there. The IP gas pipeline too would have an enormous economic impact in the region. Iran has also shown readiness to join CPEC. It has also invited Pakistan to join in the Chabahar project which is considered a rival to Gwadar.

However, if Iran closes the Straits of Hormuz it is likely that the most major impact will be on Gwadar. Gwadar was conceived to be the main Centrepoint of CPEC as it was to provide China with the shortest route for its hydrocarbon needs. A closure of the Straits of Hormuz will lead to an impairment of that function. Though Gwadar can be resupplied through Bab el Mandeb through shipping & other means but that will add to time and transport costs.

There is also a possible scenario of a full-scale conflict with Iran. As stated above, the Gwadar port to an extent negates the Iranian stratagem of blocking the Strait of Hormuz by utilizing the Bab el Mandeb route. There is a low-level chance that Iran may use coercion or military force in order to shut down Gwadar. This can lead Pakistan to a war with a neighbor with which it shares a 700 km long border on its vulnerable western flank. However, the chances of such a scenario rising are very slight. Iran already has many adversaries in the Middle East with which it will be engaged in conflict after the closure of the Straits of Hormuz. Tehran will not desire to be engaged in a two-front war with Pakistan in such a scenario.

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The closure of the Straits will also lead to an uncomfortable position for Pakistan in its relations with Iran and the GCC. The closure of the Straits of Hormuz will lead to greater hostility and possibly war between the two sides and thus make it difficult for Pakistan to stay neutral. Pakistan has security protocols with Saudi Arabia that call for Pakistani intervention in case of an incursion into Saudi territory.

China may also seek redress for the Straits of Hormuz crises by seeking alternatives for CPEC. However, it has limited options as no route is more feasible for China at the moment. Also, the Arabian Sea could see the heightened foreign activity as many powers would send their naval forces to keep the Straits open and thus force Pakistan into choosing sides.

Opportunities

1.     Pakistan can use this crisis scenario to highlight the importance of Gwadar to regional and global powers. It can translate the extreme tensions of the Hormuz chokepoint into massive investment in Gwadar and CPEC, oil and gas from Central Asia via Gwadar could also be projected as the future energy solution. GCC countries particularly Oman can take advantage to of being nearest to Gwadar and may take practical steps in making policy reforms that could encourage other GCC states to enhance their volume of trade with China through Gwadar port.

2.     The GCC countries can also lay down pipelines that will make it easy to transport oil straight to Gwadar where it can be transported to China and thus reduce reliance on the Straits of Hormuz.

3.     The Straits of Hormuz dilemma can lead to the expansion of CPEC, as both Iran and members of the GCC have given their readiness to invest in CPEC. Pakistan can use the opportunity to transform CPEC into a regional economic association and thus place itself as a mediator in economic conflicts.

Conclusion

The dilemma of the Strait of Hormuz unleashes a host of challenges for Pakistan in military, diplomatic and economic domains. However, it also presents opportunities that can be bountiful for Pakistan. Therefore, the Pakistani government should start a campaign promoting its importance as both a strategic economic center as well as an important player in regional affairs.

Jawad Falak is Assistant Editor at The Information Corridor. He specializes in Defense and Strategic Affairs. 

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