What Happens If Iran Blocks The Strait Of Hormuz?

As tensions simmer between the U.S. and Iran, a big energy threat hangs over the world.

Iran has said that if the U.S. attacks, it will respond by disrupting trade through the Strait of Hormuz — the narrow gateway that tankers use to bring oil from the Persian Gulf to the rest of the world. About two-fifths of the world’s seaborne oil passes through the Strait.

Now sheikdoms in the United Arab Emirates the third-biggest OPEC oil producer are looking at projects that would keep oil and commerce flowing if the Strait is blocked. The U.A.E. won’t say the projects are a direct response to Iran’s threats but the plans would clearly help in the event of an emergency.

Many of the plans center on the U.A.E.’s sleepy eastern coast, which is on the open-ocean side of the Hormuz choke point. Abu Dhabi, the key oil producer among the U.A.E.’s seven semi-autonomous enclaves, is planning an oil pipeline to the eastern emirate of Fujayrah, where it can be carried to the sea without passing through the Strait. And a host of other development is being considered for Fujayrah, including a larger port and the world’s biggest liquefied-natural-gas storage and trading hub.

In terms of volume, blocking the Strait of Hormuz “is probably the biggest single energy-security risk that exists in the world,” says Lawrence Eagles, head of oil markets at the International Energy Agency, the Paris-based energy watchdog for the world’s most industrialized nations. “There is a lot of discussion on these issues, and from an energy-security perspective, it would be very welcome to have any opportunity to bypass the Strait of Hormuz.”

For the IEA, the issue is an important one. In the event of an oil disruption, the IEA will likely release emergency stocks held by member countries of the Organization for Economic Cooperation and Development. While at the end of 2006 there were 1.5 billion barrels of oil in the emergency stocks, representing about 88 days of oil output through the Strait, this would take time to coordinate and distribute.

“The issue is how much crude can be moved [from stockpiles] in how much time — there is only so much that the IEA can do,” says Mr. Eagles.

About 17 million barrels of crude oil moved through the Strait of Hormuz daily last year, representing more than a fifth of the world’s total supply. The oil is taken single file through the two-mile-wide shipping lanes by a steady stream of tanker traffic. While the export level has dipped this year under self-imposed production cuts from the Organization of Petroleum Exporting Countries, it is expected to grow to as much as 32 million barrels a day by 2030 as Persian Gulf countries increase production, according to the IEA’s 2005 World Energy Outlook.

Wall Street Journal