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Archive for April 2017

Archive for April, 2017

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2 Choke Points That Threaten Oil Trade Between Persian Gulf And East Asia

 

BY GEORGE FRIEDMAN

The flow of international trade has always been subject to geopolitical risk and conflicts. At all stages of the supply chain, trade inherently faces challenges posed by the geopolitical realities along a given route.

Some routes are more perilous and harder to navigate than others. One such trade route is the maritime path for transporting oil from Persian Gulf exporters to East Asian consumers. This route faces two major choke points that are unavoidable given geographic constraints.

The Persian Gulf is a leading oil-producing region. It accounts for 30% of global supply. Meanwhile, East Asia is a major oil-consuming region. It accounts for 85% of the Persian Gulf’s exports (according to the Energy Information Administration (EIA)).

The two straits are geopolitical choke points because geographic limitations and political competition threaten access.

Choke Point #1: The Strait of Hormuz

The Strait of Hormuz is the main maritime route through which Persian Gulf exporters (Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates) ship their oil to external markets. Only Iran and Saudi Arabia have alternative access routes to maritime shipping lanes. 

The strait is 21 miles wide at its narrowest point, bordered by Iran and Oman. The EIA estimates that approximately 17 million barrels of oil per day—about 35% of all seaborne oil exports—pass through the strait.

This path is also the most efficient and cost-effective route through which these producers can transport their oil to East Asia. Persian Gulf countries depend heavily on revenue from these exports.

That’s why passage through the Strait of Hormuz is both an economic and a security issue. A disruption in the strait would impede the timely shipment of oil.

This would cause exporters to lose significant revenue, and importers would face supply shortages and higher costs. The longer the disruption, the greater the losses.

Disruptions could take place when Sunni and Shiite countries threaten to deny each other passage through the strait.

Shiite-majority Iran has threatened to close the strait and plant naval mines to assert its power over Saudi Arabia and other Sunni states. Saudi Arabia and its allies have conducted naval drills to show their willingness and ability to retaliate should Iran follow through.

Persian Gulf countries that depend on oil revenues have tried to mitigate this risk in two ways.

First, they’ve established alternate export routes. But the pipeline capacity is not enough to relieve dependence on the Strait of Hormuz.

Second, Persian Gulf countries have built security alliances with countries that have a vested interest in keeping the strait open. These alliances often involve the United States.

In 2016, the US received 18% of its oil imports from the Persian Gulf. As such, the US wants to maintain safe passage of exports through the strait.

Choke Point #2: The Strait of Malacca

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