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Emirates, Saudis pump oil to bypass Hormuz

June 28, 2012 at 12:51 PM   |   Comments

FUJAIRAH, United Arab Emirates, June 28 (UPI) -- Amid Iranian threats to close the Strategic Strait of Hormuz, the only gateway to the Persian Gulf, the United Arab Emirates is ready to pump oil through a new pipeline bypassing the waterway, while Saudi Arabia plans to reopen a long-disused pipeline to the Red Sea.

The collapse of talks last week in Moscow between a U.S.-led bloc and Iran on curbing Tehran's nuclear program has heightened tension as the European Union says it will impose a boycott on Iranian oil exports, the country's economic lifeline, on Sunday.

Iran has responded by warning that 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 that is controlled by Iran Supreme Leader Ayatollah Ali Khamenei 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.

About one-third of the world's oil supplies -- some 17 million barrels -- passes thought Hormuz every day aboard supertankers.

Even a disruption of only a few days could play havoc with the international oil markets, sending prices soaring and causing serious economic problems across the globe.

In recent months, Saudi Arabia and the Persian Gulf states have been seeking alternative export routes for their oil and natural gas amid a growing confrontation between U.S. forces and Iran in the gulf region.

Industry sources say Riyadh has reactivated the Iraqi Pipeline in Saudi Arabia, built by Saddam Hussein's Iraq during the 1980-88 war with Iran to give Baghdad a safe export route from Basra to the Red Sea port of Muajjiz near Yanbu in western Saudi Arabia to avoid the war-torn gulf.

The Saudis have been testing the 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.

Yanbu, just south of Muajjiz, is the Saudis' main export terminal for Europe, but presumably exports to Asia, Riyadh's main market these days, will also be diverted through the Red Sea.

Iraq paid for the $2.7 billion IPSA pipeline when it was built, but Saudi Arabia confiscated it in 1990 when Saddam invaded Kuwait.

Riyadh claimed the seizure was in part-payment of Baghdad's wartime debt to Riyadh, which amounted to some $60 billion. The line hasn't been used since 1990.

Saudi Arabia currently is producing some 10 million barrels of oil a day, its highest level in decades, to compensate for falling Iranian oil exports caused by Western sanctions originally imposed in mid-2010 to force Tehran to abandon its contentious nuclear project.

So, along with some 5 million bpd pumped to Yanbu through twin pipelines, known as Petroline, from the gulf coast, the kingdom should, in theory, be able to maintain a daily flow of as much as 6.5 million bpd.

The smaller of the Petroline facilities was converted to pump natural gas eastward to the industrial centers on the gulf coast, thus limiting the pipeline's capacity of carry oil to Yanbu.

Meantime, the United Arab Emirates is ready to inaugurate 230-mile new pipeline from its main oil fields in Abu Dhabi, the federation's economic powerhouse, to the southern emirate of Fujairah.

It lies south of the Strait of Hormuz, and oil exports through its large storage terminal on the Gulf of Oman would safely bypass Hormuz -- although it would fall within range of Iranian ballistic and anti-ship missiles.

The new pipeline will end the emirates' total dependence on Hormuz for its crude oil exports.

The pipeline will carry 1.5 million bpd, expected to rise to around 2 million. That's the bulk of Abu Dhabi's production of 2.4 million bpd.

The Fujairah pipeline, built by the Abu Dhabi Oil Co., is to commence operations Sunday, the same day the EU oil boycott against Iran is set to begin, with an initial throughput of 1 million bpd.

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