Iran and the Threat to "Close" the Gulf
Update December 30
There is nothing new about Iran’s threat to close the Gulf, but it does need to be put in context. Iran is reshaping its military forces to steadily increase the threat to Gulf shipping and shipping in the Gulf of Oman, It also is gradually increasing its ability to operate in the Indian Ocean.
This increase in Iranian capability is almost certainly not designed to take the form of a major war with the US and Southern Gulf states, which could result from any Iranian effort to truly close the Gulf. It does, however, give Iran the ability to carry out a wide range of much lower level attacks which could sharply raise the risk to Gulf shipping, and either reduce tanker traffic and shipping or sharply raise the insurance cost of such ship movements and put a different kind of pressure on the other Gulf states and world oil prices.
Any such Iranian actions do not have to be tied in any way to predictable attacks at or near the Strait of Hormuz. They could occur anywhere in the Gulf and in the Gulf of Oman. Iran cou\ deny many such forms of attack, claim rogue operations or that they were provoked by US or other Gulf country actions, or keep the level of such attacks so low that it would be difficult to respond with high levels of force and Iran could keep exporting its own oil.
Moreover, Iran’s growing long-range missile forces, and movement towards a nuclear weapons capability will give it an increasing capability to compensate for its aging and low capability regular naval and air forces with a far more threatening level of deterrence.
It is also important to note that the current flow of oil and gas exports through the Gulf is critical to the global economy, as well as that of a US that must pay rising world oil prices in a crisis. The US Department of Energy projects that this global strategic dependence on the secure and steady flow of Gulf energy exports will increase steadily through 2035 – as far in the future as the Department makes projections.
Equally important, the same US Department of Energy projections make it clear that the US will not achieve any meaningful improvement in energy independence through 2025, although it will make limited reductions in total imports and increases its own conventional and unconventional liquids production.
These issues are analyzed in depth in a new analysis entitled Iran and the Threat to “Close” the Gulf that can be accessed by visiting https://csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/publication/121230_IranGulfThreatBrief.pdf
This analysis is based on data that were updated in a new analysis by the Energy Information Agency of the Department of Energy issued on December 30. It does not alter nay of the conclusions or military data in the CSIS brief, but does provide more current statistics on the energy traffic in key chokepoints:
Strait of Hormuz
In 2011, total world oil production amounted to approximately 88 million barrels per day (bbl/d), and over one-half was moved by tankers on fixed maritime routes. By volume of oil transit, the Strait of Hormuz leading out of the Persian Gulf and the Strait of Malacca linking the Indian and Pacific Oceans are two of the world's most strategic chokepoints.
The international 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.
n average, 14 crude oil tankers per day passed through the Strait in 2011, with a corresponding amount of empty tankers entering to pick up new cargos. More than 85 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 about 5 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 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.
Closure of the Bab el-Mandab could keep tankers from the Persian Gulf from reaching the Suez Canal/Sumed pipeline complex, diverting them around the southern tip of Africa.
The Strait of Bab el-Mandab is a chokepoint between the horn of Africa and the Middle East, and a strategic link between the Mediterranean Sea and Indian Ocean. It is located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea. Most exports from the Persian Gulf that transit the Suez Canal and SUMED pipeline also pass through the Bab el-Mandab.
An estimated 3.2 million bbl/d flowed through this waterway in 2009 (vs. 4 million bbl/d in 2008) toward Europe, the United States, and Asia. The majority of traffic, about 1.8 million bbl/d, moved northbound through the Bab el-Mandab en route to the Suez/SUMED complex.
The Bab el-Mandab is 18 miles wide at its narrowest point, making tanker traffic difficult and limited to two 2-mile-wide channels for inbound and outbound shipments. Closure of the Strait could keep tankers from the Persian Gulf from reaching the Suez Canal or Sumed Pipeline, diverting them around the southern tip of Africa. This would effectively engage spare tanker capacity, and add to transit time and cost.
The Strait of Bab el-Mandab could be bypassed via the East-West oil pipeline, which crosses Saudi Arabia with a nameplate capacity of 4.8 million bbl/d. However, southbound oil traffic would still be blocked. In addition, closure of the Bab el-Mandab would block non-oil shipping from using the Suez Canal, except for limited trade within the Red Sea region.
Security became a concern of foreign firms doing business in the region, after a French tanker was attacked off the coast of Yemen by terrorists in October 2002. In recent years, this region has also seen rising piracy, and Somali pirates continue to attack vessels off the northern Somali coast in the Gulf of Aden and southern Red Sea including the Bab el-Mandab.
The Suez Canal is located in Egypt, and connects the Red Sea and Gulf of Suez with the Mediterranean Sea, spanning 120 miles. Year-to-date through November of 2010, petroleum (both crude oil and refined products) as well as liquefied natural gas (LNG) accounted for 13 and 11 percent of Suez cargos, measured by cargo tonnage, respectively. Total petroleum transit volume was close to 2 million bbl/d, or just below five percent of seaborne oil trade in 2010.
Almost 16,500 ships transited the Suez Canal from January through November of 2010, of which about 20 percent were petroleum tankers and 5 percent were LNG tankers. With only 1,000 feet at its narrowest point, the Canal is unable to handle the VLCC (Very Large Crude Carriers) and ULCC (Ultra Large Crude Carriers) class crude oil tankers. The Suez Canal Authority is continuing enhancement and enlargement projects on the canal, and extended the depth to 66 ft in 2010 to allow over 60 percent of all tankers to use the Canal.
Closure of the Suez Canal and the SUMED Pipeline would divert oil tankers around the southern tip of Africa, the Cape of Good Hope, adding approximately 6,000 miles to transit, increasing both costs and shipping time. According to a report released by the International Energy Agency (IEA), shipping around Africa would add 15 days of transit to Europe and 8-10 days to the United States.
The 200-mile long SUMED Pipeline, or Suez-Mediterranean Pipeline provides an alternative to the Suez Canal for those cargos too large to transit the Canal (laden VLCC's and larger). The pipeline has a capacity of 2.3 million bbl/d and flows north from Ain Sukhna, on the Red Sea coast to Sidi Kerir on the Mediterranean. The SUMED is owned by Arab Petroleum Pipeline Co., a joint venture between the Egyptian General Petroleum Corporation (EGPC), Saudi Aramco, Abu Dhabi's National Oil Company (ADNOC), and Kuwaiti companies.
The majority of crude oil flows transiting the Canal travel northbound, towards markets in the Mediterranean and North America. Northbound canal flows averaged approximately 428,000 bbl/d in 2010. The SUMED pipeline accounted for 1.15 million bbl/d of crude oil flows along the route over the same period. Combined, these two transit points were responsible for over 1.5 million bbl/d of crude oil flows into the Mediterranean, with an additional 307,000 bbl/d travelling southbound through the Canal. Northbound crude transit represented a decline from 2008 when 940,000 bbl/d of oil transited northbound through the Canal and an additional 2.1 million travelled through the SUMED to the Mediterranean.
Total Oil and Products
Total oil flows from the Suez Canal declined from 2008 levels of over 2.4 million bbl/d in 2008 to just under 2 million bbl/d on average in 2010. Flows through the SUMED experienced a much steeper drop from approximately 2.1 million bbl/d to 1.1 million bbl/d over the same period. The year-on-year difference reflects the collapse in world oil market demand that began in the fourth quarter of 2008 which was then followed by OPEC production cuts (primarily from the Persian Gulf) causing a sharp fall in regional oil trade starting in January 2009.
Drops in transit also illustrate the changing dynamics of international oil markets where Asian demand is increasing at a higher rate than European and American markets, while West African crude production is meeting a greater share of the latter's demand. At the same time, piracy and security concerns around the Horn of Africa have led some exporters to travel the extra distance around South Africa to reach western markets.
Liquefied Natural Gas (LNG)
Unlike oil, LNG transit through the Suez Canal has been on the rise since 2008, with the number of tankers increasing from approximately 430 to 760, and volumes of LNG traveling northbound (laden tankers) increasing more than four-fold. Southbound LNG transit originates in Algeria and Egypt, destined for Asian markets while northbound transit is mostly from Qatar and Oman, destined for European and North American markets. The rapid growth in LNG flows over the period represents the startup of five LNG trains in Qatar in 2009-2010. The only alternate route for LNG tankers would be around Africa as there is no pipeline infrastructure to offset any Suez Canal disruptions. Countries such as the United Kingdom and Italy received more than half of their total LNG imports via the Suez Canal in 2009 while over 90 percent of Belgium's LNG imports transited through the canal.