Syed Rashid Husain Geopolitical stakes are getting higher - impacting the energy world - directly and indirectly. And with volatile mix of oil and politics gelling together, focus is increasing on the Straits of Hormuz, the narrow, strategically important pathway between the Gulf of Oman and the Arabian Gulf. Interestingly, this is the only sea passage to the open ocean, currently available, for oil exports from the Gulf and is one of the world's most strategically important choke points. Approximately 20 percent of the world's oil, which is about 35 percent of global seaborne traded oil, passes through this pathway. According to the US Energy Information Administration, on an average day in 2011, about 14 tankers carrying 17 million barrels of crude oil passed out of the Arabian Gulf through Hormuz. The geopolitical importance of the strait is such that Cyrus Vance, the former US secretary of state, once called it "the jugular vein of the West". With temperatures rising in the vicinity, the issue is what, if real fireworks begin and Tehran moves ahead with its threat of choking this crucial transit point. In recent weeks Ali Fadavi, naval commander in Iran's elite Revolutionary Guard Corps has been explicitly warning that Tehran had the ability to "not allow even a single drop of oil to pass" the strait. Iran has also been underlining that it has the right under international law to close the narrow, 112-mile Strait of Hormuz at the southern end of the Gulf if any attempt is made to prevent it selling oil. Hossein Shariatmadari, chief editor of the Kayhan newspaper declared in a commentary that Tehran will never back down and will retaliate. "According to the 1958 Geneva Convention and the 1982 Jamaica Convention, which touches on the legality of international waterways, Iran can close down the Strait of Hormuz to all oil tankers and even other commercial vessels if it is barred from selling oil," Shariatmadari wrote. Undoubtedly in such a case, the global energy balance would come under severe strain with repercussions much beyond control. A crisis of immense proportion could then brew. Oil rich Gulf Arab states have been weighing various options to somehow bypass the straits -in case required. Only last week, the UAE opened a new, $4 billion, oil pipeline that bypasses the Strait of Hormuz, with its first cargo heading to a refinery in Pakistan. "The official opening was today after the tests were completed, and the first cargo is going to Pakistan," a UAE official, who asked not to be named, told Dow Jones Newswires immediately after the opening. The 400-kilometer pipeline can transport 1.5 million barrels a day of crude and will enable Abu Dhabi, to export as much as 70 percent of its crude from Fujairah, located outside the Arabian Gulf on the Gulf of Oman, where tankers will be able to pick up the oil instead of sailing into the Arabian Gulf via the Strait of Hormuz, the narrow waterway watched over by Iran. In the meantime, Saudi Arabia has also been working to overcome the Hormuz bottleneck. It has reportedly converted a natural gas pipeline to allow it to carry crude oil. The 1,200-kilometer long pipeline, which could transport up to 2m b/d runs from the oilfields of the Eastern province, on the Gulf coast, to a terminal near Yanbu in the Red Sea. The 48-inch pipe was built during the Iran-Iraq war in the early 1980s, when both sides were attacking oil tankers in the Gulf, to transport oil as part of the so-called East-West Petroline system of pipelines. But the line was later converted to carry natural gas. Now Riyadh has switched it back to oil, according to officials. "We want to be ready," a Saudi official was quoted as telling the press. "The pipeline gives us flexibility." Saudi Arabia has three other oil and gas pipelines across its territory bypassing the Strait of Hormuz: a 56-inch oil pipeline, built three decades ago as part of the Petroline system, which can carry 3m b/d of oil; a 300,000 b/d natural gas liquids pipeline parallel to the Petroline system; and the IPSA pipeline, used in the 1980s to transport Iraqi oil. Industry sources say Riyadh has recently reactivated the Iraqi Pipeline too. Aramco has been testing this 48-inch-diameter IPSA line in recent months and plan to pump 1.65 million barrels a day from the Kingdom's main oil fields on the gulf coast 750 miles across the desert to the Red Sea. And interestingly, of all, Iran also now plans to build an oil terminal outside the Strait of Hormuz to ensure exports in the event of Gulf shipping problems and to ship Caspian oil, a Reuters report citing Iranian oil ministry news website, Shana, said a few weeks back. Iran plans to build a new export terminal at Bandar Jask, on the Gulf of Oman coast of Iran, Seyyed Pirouz Mousavi, the head of the Iranian Oil Terminal Company (IOTC), said. It would be connected to the Caspian seaport of Neka using a one million barrels a day pipeline. "In the event of any type of problem in exporting crude oil from the Kharg terminal, this terminal can provide back up for exports," Shana quoted him as saying. Mousavi said the planned terminal outside the vital Gulf oil shipping route would have a storage capacity of 20 million barrels and cost around $2.2 billion to build. Kharg has 22 million barrels of storage capacity. It is not clear when the terminal would be operative. With these new pipelines in operation, the total capacity bypassing the crucial straits has now been more than doubled to 6.5 million barrels per day, or about 40 percent of the 17m b/d that transits Hormuz every day. Does that mean that the Iranian ace of blocking Hormuz has been turned into a joker? With 11 million b/d still passing through the crucial straits, the answer is a simple no. Energy world would still be unable to sustain any such scenario. The real issue is, if Iran could realistically ever carry out its threat to close the straits? Analysts feel, despite the rhetoric, for two reasons, it does not appear practical: first, it is the gateway for all its own oil exports and also for its food imports; second, the strait is so strategic that a blockade would trigger a military response from the US and potentially other countries. And the US warships, including minesweepers are already in the region. That, in itself, is a bigger obstacle in Iran's way - let's concede.
