Hormuz row between US, Iran heading for ultimate round

The US move to strangulate Tehran financially by sanctioning its crude exports for alleged nuclear designs, the military exercises in the Gulf by Iran and the movement of US naval vessels in the area, are all raising fears of a possible confrontation between the two. Iran raised the specter further, threatening to shut the Strait of Hormuz, in case Tehran crude exports are sanctioned. With almost 17 million bpd moving through Hormuz, this could be disastrous.

Thus in the wake of the pressure from Washington, the energy fraternity is busy evolving various combinations and permutations. Consumers are deeply concerned, scurrying at alternatives and making new contracts. Calculations are being made and the arithmetic is being checked and rechecked, as leaders from China, Japan and South Korea are racing to the region.

As these lines are being written, Chinese Premier Wen Jiabao is in Riyadh. His visit comes amid signs that tighter economic sanctions may stop Iran, OPEC’s second-largest producer after Saudi Arabia, from selling its oil. The regional trip is also taking Wen to energy rich Qatar and the United Arab Emirates.

Although there are now signs that an EU embargo on purchases of Iranian crude, to be decided on Jan. 23, will probably be delayed for at least another six months to let countries such as Greece, Italy and Spain, accounting for 68.5 percent of EU oil imports from Iran in 2010, find alternative supplies, yet China and other Asian countries importing large volumes of crude from Iran are not ready to take chance. They are stacking their cards.

China is the biggest importer of Iranian crude, buying 22 percent of the Iranian oil in 2010, while Iran is China’s third-largest supplier, shipping it about 556,000 barrels a day, or about 11% of China’s total crude imports.

But now the pressure on Beijing to shun Tehran — and its crude — is growing. US seems determined to isolate Iran. Hence its largest oil customers — China, Japan and South Korea — and indeed others are preparing themselves for the eventuality — if at all. Last Wednesday, the US Treasury Secretary Timothy Geithner called on China to dramatically reduce crude purchases from Iran. Yet during his trip to Beijing, he found little clarity from Chinese officials here on the request. Chinese officials have been reluctant to link the economic ties with Iran to the nuclear issue, saying publicly the two matters should be kept separate.

After Geithner’s call, a front-page commentary in the overseas edition of the People’s Daily newspaper on Thursday said China wouldn’t “blindly follow the US’s steps” unless the Iran issue was taken up as a UN resolution.

But despite the bravado, Beijing is not oblivious of the realities. Reportedly, negotiations to reach new long-term contracts to replace Iranian oil have been initiated and that could take a month or more to take shape, analysts believe. And this makes one feel that Tehran has some breathing space.

Geithner had more receptive ears in Tokyo. Japan wants to take “concrete steps” to reduce petroleum imports from Iran, Finance Minister Jun Azumi said at a joint press conference. However, there were contradictory signals too. Chief Cabinet Secretary Osamu Fujimura said the government hasn’t made a final decision on cutting imports, and that Azumi’s pledge “is just one of several opinions.” Koichiro Gemba, the Japanese foreign minister, too, said on Friday that the Japanese government had come to no conclusions on the sanctions issue.

Japan has been gradually reducing imports from Iran and from January to November 2011, it bought only 9 percent of its crude from Iran, corresponding to almost 14 percent of the total Iranian crude exports.

With the US pressure growing, Japanese foreign minister Koichiro Gemba too dashed to Riyadh and other Gulf Arab OPEC capitals last week. Japan has asked Saudi Arabia and the United Arab Emirates (UAE) to supply it with more oil, Japanese Foreign Minister underlined last week. A spokesman for the Japanese Foreign Ministry, Masaru Sato, declined to discuss the quantities of extra oil sought by Japan but said a team of technical experts was to travel to Saudi Arabia and the UAE to discuss the details.

Japan imports around 25 percent of its oil from the UAE, 30 percent from Saudi Arabia and around 10 percent from Qatar.

In the meantime, JX Nippon Oil & Energy Corp., Japan’s largest refiner by capacity, has also been in talks with Saudi Arabia and other oil producers about possible purchases in case of a ban on Iranian crude, a JX spokesman said last week. The oil refining unit of JX Holdings Inc. currently buys 90,000 barrels a day of crude oil from Iran.

In the meantime, the South Korean prime minister also has been visiting Oman and the UAE. News media in South Korea have been reporting that the Seoul was considering cutting crude purchases from Iran. And it too needed to talk to possible partners to fill in the gap.

And though the United Kingdom is not under any pressure to diversify away from Tehran, as the relations between the two countries are already at an ebb, yet the visit of the British Prime Minister David Cameron to Saudi Arabia was also not completely unrelated to the evolving theater, analysts believe. After all, Britain more than often coordinates its steps with Washington and Cameron’s visit to Riyadh may also be seen in the perspective of the growing pressure on Tehran.

In India, which imports about 300,000 to 350,000 bpd of crude, refiners who process 13 percent of Iranian crude exports are also gradually turning away from Iran. Indian government has reportedly told refiners to reduce oil imports from Iran. New Delhi also clarified it was not seeking a waiver from US sanctions. Consequently India was also seeking a much greater energy based relationship with Riyadh — as was indicated to the visiting Saudi trade delegation.

And to be able to cope with the situation, senior executives of the International Energy Agency (IEA) are also reportedly discussing a plan to release up to 14 million barrels per day (bpd) from the strategic reserves of the OECD.  Action on this scale would be more than five times the size of the biggest release in the agency’s history — made in response to Iraq’s 1990 invasion of Kuwait.

But the picture is not complete yet. Despite the threat, the ongoing European Union talks on blocking imports of Iranian oil are reportedly bogged down. Greece, Italy and Spain are trying to soften a UK push for a blanket ban, on concern that a supply shock would add to the economic woes of Europe, while a few EU members are also finding it difficult to cope with the emerging scenario.

As the theater in this war of nerves enters the final stages of preparation, remains who is going to blink first — Washington or Tehran? Billion dollar question indeed!

Arab News

5 Comments on "Hormuz row between US, Iran heading for ultimate round"

BillT on Sat, 21st Jan 2012 1:48 pm 



Ah, the news from the Sunni view point! Funny how if you go to news out of China, or other non-Western countries, you get a different picture.

There is not going to be an invasion nor is there going to be an effective sanction against Iran. If there is, there will be war and that will take down all of the Middle East, Europe and the US economy.

If Israel is insane enough to attack Iran, I hope they (Israel) get such retribution from the Shiites that it will be decades before they decide to try again.

Iran is selling oil for currencies other than dollars and that pisses off the elite bankers that want to control the world. That is what killed Saddam and Gaddafi. We shall see…

Indigoboy on Sat, 21st Jan 2012 2:41 pm 



As of yesterday (20/1/2012), we in Britain are not allowed an alternate view of the middle east. A least not across our airwaves. Here in the UK, our regulatory body on broadcasting, Ofcom, have revoked the licence of Press TV which up until a few days ago had the right to broadcast across the UK.
Why? Press TV are an Iranian news channel.
http://www.youtube.com/watch?v=2KMc02o8qZI
Make up your own mind as to the reasoning or politics behind the move.

Baptised on Sat, 21st Jan 2012 6:57 pm 



It is refreshing to read BillT & Indigoboy’s comments. Both are spot on true! I am so proud of my fathers WWII medals. But have pleaded with my two grandson to get out of the military, and not for worry of injury or death.

JohnRM on Sat, 21st Jan 2012 7:36 pm 



If Israel decides to strike Iran, it will only be possible with the assistance and support of Saudi Arabia. They must have access to their airspace and bases, otherwise Iran is not within range. Iraq would never agree to assist Israel. So, an Israeli airstrike is very unlikely.

Beyond that, the rest of the Middle East (minus Saudi Arabia) has absolutely zero chance of mounting any kind of effective retaliatory response in the event that Israeli somehow does pull it off.

BillT on Sun, 22nd Jan 2012 2:37 am 



JohnRM, and what would happen iof those ‘weak’ Middle East countries stop selling oil to the rest of us? Even 6 months would bring down the West economically. there is not enough in reserves to replace that much oil and maintain the economy for more than about 90 days. It does not take high tech to take down a refinery or pipeline.