Tiny emirate could save gulf oil exports

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DUBAI, United Arab Emirates, June 13 (UPI) -- Amid simmering tensions in the Persian Gulf standoff between Iran and the United States, the barely known, tiny emirate of Fujairah is set to become a strategic outlet for oil exports if Iran shuts down the choke point Strait of Hormuz.

Oil-rich Abu Dhabi, the economic powerhouse of the United Arab Emirates that includes Fujairah, has just about completed construction of a 237-mile pipeline from its main oil fields to Fujairah on the Gulf of Oman.

The port lies outside the southern end of the narrow 112-mile strait through which around 35 percent of the world's oil passes. That gives it major strategic importance, since supertankers would be able to load there on the edge of the Indian Ocean without entering the strait.

Tehran has said it would close the strait if the Islamic Republic is attacked because of its contentious nuclear program, or if international sanctions first imposed in mid-2010, and steadily tightened ever since, choke off its vital oil exports.

And right now, that's what happening, so Fujairah could become a pivotal facility in the global oil supply system.

"There's a recognition that it's a strategic asset having an outlet on the Indian Ocean," commented Robin Mills of Manaar Energy Consulting and Project Management in Dubai, the emirates' financial center.

The 48-inch-diameter pipeline will have an initial capacity of 1.5 million barrels per day. That's expected to increase later to 1.8 million bpd, most of the United Arab Emirates' production.

The United Arab Emirates, a confederation of seven emirates, is the third largest exporter in the Organization of Petroleum Exporting Countries after Saudi Arabia and Iran. It produces around 3 million bpd.

Fujairah has been emerging as a major refueling port. It contains more than 100 fuel silos and oil storage tanks that can hold 1 million barrels of crude.

Fujairah seeks to become one of the world's biggest oil supply hubs. It plans to double its storage capacity by 2014 now that the Abu Dhabi pipeline is about to start operating.

A Singapore oil trader plans to build a 1.125 million bpd storage zone by 2014 and the local Primestar Energy is expected to complete a 640,000 bpd storage project by 2013.

On top of that, a $3 billion, 200,000 bpd refinery is also planned by the Abu Dhabi International Petroleum Investment Co., which is building the pipeline.

In March, another Abu Dhabi government-backed concern, Mubadala Development Co., announced it will build a liquefied natural gas terminal for domestic use.

The Fujairah projects won't, initially, be available to the other Arab monarchies along the western shore of the gulf. They're not connected to the new pipeline and it's not clear at this stage whether they seek to be.

But the pipeline will be able to keep the United Arab Emirates exports flowing if Iran does try to close the strait.

Saudi Arabia has pipelines running westward across the Arabian Peninsula from its gulf coast oil fields to the Red Sea port of Jeddah but they can't handle anywhere near the kingdom's output of nearly 10 million bpd, higher than usual to compensate for the loss of Iranian exports because of Western sanctions.

Nor will they be of any help to Iraq or Kuwait, or Qatar's vast natural gas exports.

Iraq has pipelines running north to the Turkish Mediterranean terminal at Ceyhan but most of its exports are currently shipped south through the gulf and Hormuz.

Redirecting this northward, should the need arise, will mean new pipelines to connect the southern fields to twin pipelines running from Kirkuk in the north to Turkey.

All this will take time and billions of dollars. Apart from opening up the Fujairah route, with its limited capacity, none of the gulf Arab states appears to be making any move to find alternative export routes.

Iran itself, struggling against ever-tightening international sanctions, is reported to be planning to build a new oil export terminal at Jask, on the Arabia Sea to bypass Hormuz along with a pipeline network from its fields.

But that too will take time and there may not be much of that.

Whether the gulf's oil supplies continue to flow through Hormuz is likely to be decided at a meeting between Iran and its U.S.-led adversaries in Moscow Monday and Tuesday.