Emirates seek alternative oil export route

Nov. 18, 2010 at 10:49 AM
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ABU DHABI, United Arab Emirates, Nov. 18 (UPI) -- Amid continuing fears that Iran may seek to close the choke point Strait of Hormuz in the Persian Gulf, a vital oil artery for the world, the United Arab Emirates is seeking alternative export routes for its oil.

The federation opened a naval base Oct. 20 at Fujairah on its east coast, south of the entrance to the strait in the Gulf of Oman.

It will play a key role in plans to construct an overland route from Abu Dhabi, the emirate that contains more than 90 percent of the federation's oil, to the sea without using the narrow, horseshoe-shaped strait.

Abu Dhabi is reported to be building two pipelines -- one for oil, the other for natural gas -- across the desert to Fujairah, where it plans to construct a huge export terminal and an oil storage facility.

"A naval base in Fujairah will give the emirates more capabilities to protect its economic zone and its strategic facilities, the port down there which will be a major point of export for oil and gas," said Riad Kahwaji, director of the Institute for Near East and Gulf Military Analysis in Dubai.

Tehran has threatened several times to close the strait if the United States or Israel launches pre-emptive attacks against Iran's nuclear facilities. This could be done by sinking large ships to block the waterway, in airstrikes or missile attacks, or by placing sea mines.

On a typical day, around 15 tankers carrying up to 17 million barrels of oil and oil products, along with dozens of freighters, pass through the strait -- two-fifths of the world's oil supply.

This comprises most of the oil and liquefied natural gas exported by Saudi Arabia, the emirates, Qatar and Kuwait, as well as Iran and those from southern Iraq.

Going the other way, the Gulf Cooperation Council states -- Saudi Arabia, the United Arab Emirates, Kuwait, Oman, Qatar and Bahrain -- import most of their food and consumer goods through the strait and a prolonged shutdown would cause serious economic and social disruption.

The gulf region holds 55 percent of the world's known oil reserves. So a prolonged closure of the 112-mile strait, whose eastern shore is controlled by Iran, would send oil prices soaring, causing a global economic shockwave.

"If this chokepoint was closed for an extended period, the economies of the Middle East would suffer significantly and this would generate severe economic dislocation around the world," Jane's Intelligence Review reported recently.

"Millions of guest workers in gulf states from developing countries could also be left unemployed, leading to greater poverty in South Asia and East Asia."

This would undoubtedly send oil prices soaring from the current level of around $80 per barrel to the peak of nearly $150 it hit in 2007-08, possibly to even more crippling levels.

The U.S. Energy Information Administration estimates that if the strait were closed, only about 3 million barrels of oil per day could realistically be redirected through Saudi Arabia through a trans-Arabian pipeline to the Red Sea port of Yanbu on the kingdom's west coast.

There would no other way to transport the 31 million tons a year of LNG -- 18 percent of world consumption -- that Qatar and the emirates export.

However, the emirates and Saudi Arabia are planning to construct a major rail network across the peninsula that would allow them to move oil and gas exports overland to the west to the Red Sea or north through Iraq to Turkey to join the European energy grid, as well as to bring in imports.

"The first of these projects," a north-south minerals rail link, "is now only weeks from completion," the Middle East Economic Survey reported this week.

Even if a closure of the strait was relatively short, in the order of several weeks, the economic impact would still be substantial, magnified by the global economic crisis.

"Extended closure of the strait would remove roughly a quarter of the world's oil from the market, causing a supply shock of the type not seen since the glory days of OPEC," Caitlin Talmadge of the Security Studies Program at the Massachusetts Institute of Technology, warned in a mid-2008 assessment.

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