Will Straits Of Hormuz Be Blocked Fully?

Mumbai, India (PressExposure) February 11, 2009 -- In 2008/09 the Strait of Hormuz ([http://www.bharatbook.com/Market-Research-Reports/Straits-of-Hormuz.html]) could be back in the eye of the storm again. The waterway is arguably the world energy industry’s single most important ‘choke point’, through which 40% of the world’s seaborne oil is shipped. Recent fears that the Strait could be partially or totally blocked in an Iran-related conflict in the next six months helped boost a spike in crude prices in mid- 2008. In this special report, BMI looks at the importance of this narrow passageway of water, and how various scenarios might play out for it, affecting the very large crude carrier (VLCC) market.

The Straits – Background :

The Strait connects the key Persian Gulf oil producers by water through to the Gulf of Oman, and beyond that to the world’s main open ocean tanker routes. On the north coast of the Strait is Iran, while to the south lies the United Arab Emirates (UAE) and the Musandam peninsula, an Omani exclave. At its narrowest point, the Strait is 34km (21 miles) wide. The Energy Information Administration (EIA), part of the US Department of Energy, defines a ‘chokepoint’ as a ‘narrow channel along widely used global sea routes’ which is critical to global energy security because of the high volume of oil that passes through it. It ranks Hormuz as the world’s single most important chokepoint, followed by the Strait of Malacca, and the Suez Canal; also lower down on the list are the Turkish Straits and the Panama Canal.

World oil production in 2007 was estimated at 85mn barrels per day (b/d). Over half of that, 43mn b/d, was moved from the producing countries to consumer markets by maritime freight on ocean tanker trade routes.

The amount of that flow passing through the Strait of Hormuz is put at 16.5mn to 17mn b/d. These are the rough numbers that lead analysts to say that 20% of global oil production and 40% of world seaborne oil go though Hormuz. The flow through the Strait was around 16.5mn b/d in 2006, dropping to around 16mn b/d in 2007 because of OPEC production cuts, but rising to between 16.5mn and 17.0mn b/d in the first half of this year. There are two 2-mile wide navigation channels, respectively for inward and outbound traffic, and a buffer zone between them, also 2-miles wide. Outbound tanker traffic carries oil mainly to destinations in Asia, the US and Western Europe. About 75% of Japan’s oil import requirements are shipped through the Strait. For the US the figure is lower but significant, nevertheless: 17.5% of its oil total import needs. Last year average daily passage through the Strait was 15 crude oil tankers.

The Persian Gulf has lived through conflicts before. During the 1980-88 Iran-Iraq war both sides took to attacking oil tankers seen as working for their enemy or their enemy’s allies. The ‘tanker war’ started in 1984 when Iraq attacked Iranian tankers and the oil terminal at Kharg Island. Iran responded by attacking tankers carrying Iraqi oil as well as tankers working for any of the Gulf States then supporting Iraq. Lloyd’s of London estimated that during the ‘tanker war’ mainly between 1984 and 1987, 546 commercial vessels were damaged and 430 civilians were killed. The US and other powers eventually provided protection to shipping in the Gulf. During the conflict there were various military clashes between US and Iranian forces. After the USS Samuel B. Roberts was damaged by an Iranian mine in April 1988, in what was considered its largest surface engagement since World War II, the US Navy destroyed two Iranian oil platforms, two ships, and six Iranian gunboats. In July of the same year a US Navy cruiser, the USS Vincennes, launched a missile which shot down a civilian Iran Air Airbus flight, killing all 290 passengers and crew. The US said the Airbus had been mistakenly identified as an attacking Iranian air force fighter. Tehran said the attack on is civilian airliner took place within Iranian territorial waters and the Iran Air plane had been climbing after take-off, not diving for an attack as various US sources had claimed. The incident remains highly controversial; the twentieth anniversary of the tragedy was recently marked in Iran.

What happened in the Gulf 20 years ago remains relevant to the situation today in various ways. An important point is that even ‘controlled’ security operations can go wrong and nervous military personnel can make mistakes that escalate rapidly. In January 2008, US President George Bush highlighted a dangerous clash between Iranian boats and three US Navy ships in the Strait of Hormuz. Unsurprisingly, perhaps, there was controversy over the details of the incident. According to Washington, Iranian boats aggressively approached the three US Navy ships in the Strait on January 6, and threatened that the ships would be blown up. The US President, during a Middle East tour, warned that the incident had been a ‘very provocative act’ and that his country considered that ‘all options are on the table to protect our assets’. US officials showed an edited video of the incident, including a recording of a voice, allegedly of an Iranian, threatening that the US ships would blow up ‘in minutes’. Iran rejected the video as fake, saying the images were archive pictures. Iranian defence minister Mostafa Mohammad Najjar said ‘Iranian craft always ask other ships to identify themselves and this is what they did to the American ships. The American ships answered and that was it’. Later in January, however, the privately owned US publication Navy Times suggested a different interpretation. The voice recording might have been of a mysterious radio prankster known to have taunted ships in the Gulf for years. According to the Navy Times, US sailors had heard the prankster ‘transmitting insults and jabbering vile epithets’ on unencrypted frequencies for years.

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Press Release Submitted On: February 11, 2009 at 6:18 am
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