Blockade of shipping lines in the Suez Canal and ramifications for the Strait of Hormuz, Energy News, ET EnergyWorld
The Suez Canal is a critical maritime trade route that connects the Mediterranean and the Red Sea, through Egypt, reducing east-west navigation time by allowing ships to cross without having to circle the tip all the way. South Africa – on average ships can reduce their sailing distance by almost 12,000 km, saving around 14 days of valuable sailing time.
Its importance and its vector are measured by the fact that on average nearly 50 ships pass along the canal each day, or about 12% of world trade. In 2020, a total of 18,829 ships transited carrying nearly 1.2 billion tonnes of freight.
This channel is a crucial cog in the world energy trading, transporting crude from the Middle East to Europe and the United States, as well as petroleum products from the West to the East. Each day, approximately 600,000 barrels of crude circulate from the Middle East to Europe and the United States, via the canal, and approximately 850,000 barrels from the Atlantic basin to Asia. In addition, 400,000 barrels of naphtha sail east each day with 300,000 barrels of middle distillates (such as diesel, kerosene, jet fuel) from Asian refineries to the west.
However, there is another more critical risk for world trade, and the trade in crude oil in particular, which carries nearly three times the volumes of crude handled through the Suez Canal; the Strait of Hormuz.
The Strait of Hormuz is a narrow waterway that connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. At its narrowest point, the waterway is only 21 miles wide and the width of the waterway in either direction is only 2 miles, separated by a 2-mile buffer zone (see Figure 2).
Figure 2: The Strait of Hormuz
It is a key maritime transit route through which most of the Gulf countries export crude oil, LNG and refined products. Nearly 18 million barrels of crude are exported by major OPEC exporters such as Saudi Arabia, Iraq and Kuwait – which account for almost 30% of the global maritime oil trade (see Figure 3).
Fig 3: Main exporters of crude oil and their dependence on the strait
The geopolitical scale of the strait has long made it a hotbed of international tensions between Tehran and the West, which have only increased in recent times, with Iran threatening to close this vital passage through sabotage or naval interference.
Iran has always viewed the Strait of Hormuz as an asset up its sleeve, and an important bargaining chip if the West, primarily the United States, was deemed to be acting in any way to the detriment of strategic interests. and / or military from Tehran. Former Iranian Prime Minister Hoveida once called it “our jugular vein”. More recently, Major General Jafari of the Iranian Revolutionary Guards issued a statement in 2018: period “
It is in the context of this Iranian saber-strike and its open threat to disrupt maritime traffic (and especially crude oil exports) that any mishap around the Strait of Hormuz is a clear and current danger to the economy. global. Past experience shows that the world does not respond well to interruptions on the supply side and when crucial barrels of oil are pulled from the market – which then leads to price shocks that have the capacity to affect several fiscal woes. to crude importing countries as well as to crude importing countries. Mondial economy.
In the past, crude oil prices have, as you might expect, skyrocketed whenever there was a crisis in the Middle East – for example, oil prices have risen two and a half times during the Arab oil embargo in 1973, almost doubled during Iraq’s invasion of Kuwait. in 1991, increased by around 30% during the Libyan crisis and, more recently, by 20% in the aftermath of the Abqaiq strikes of September 14, 2019 in Saudi Arabia (see figure 4).
Fig 4: Historical analysis of global oil supply disruptions
Given this unstable mix of belligerence and public posture that has the capacity to significantly harm the global economy, Asian crude importers must proactively consider remedial plans to protect their energy security needs if a military mishap made the Strait of Hormuz impassable. Improving strategic crude storage plans as a defense against price spikes and supply disruptions is one of the most practical approaches taken by several countries around the world.
In a geopolitically uncertain world, it would make sense for import-dependent countries like India to implement a concerted push towards building Strategic Petroleum Reserves (SPRs) – both within the country as well as in neutral geographies. and safely away from conflict zones in the Gulf, which can be exploited in an emergency.
[This piece was authored by Rajat Kapoor, Managing Director – Oil & Gas, AWR Lloyd]
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