ANALYSIS:Iran brandishes
'shipping card' as nuclear row escalates
Platts
Dubai
Petroleumworld.com 02 07 06
An Iranian lawmaker has raised the stakes in Iran's nuclear crisis
with a
warning that his country holds the "key to security"
in the Persian Gulf,
through which 40% of the world's tradeable crude oil is shipped
to markets.
Soleiman
Jafarzadeh of the Majlis National Security and Foreign Policy
Committee was quoted Saturday as saying that "any kind of
pressure or threats
against Iran would inflict severe damage on Western countries
in the Middle
East, particularly in Iraq and Afghanistan," a reference
to the US military
presence in both countries.
He added
that "those countries that claim they can increase their
oil
production in order to prevent a rise in the price of oil, in
the event that
the UN imposes sanctions on Iran, should know that the Islamic
Republic holds
the key to security in the Persian Gulf."
Jafarzadeh's
remarks as carried by the semi-official Iranian Mehr news
agency, were widely reported by Arab media and made the front-page
of the
Saudi-owned newspaper al-Hayat Sunday under the headline: "Iran
brandishes the
Gulf shipping card."
PERSIAN GULF
IS HOME TO 60% OF GLOBAL OIL RESERVES
The Persian
Gulf contains 715-bil bbl of proven crude oil reserves,
roughly 60% of the world's total and some 45% of global natural
gas reserves.
More importantly, the region is home to nearly all the world's
spare oil
capacity, the bulk of it in Saudi Arabia.
OPEC powerhouse
Saudi Arabia as well as neighbors Kuwait, Iraq and the
UAE all export crude oil from Gulf ports though the Saudis have
access to the
Red Sea and could in an emergency ship more crude from Yanbu and
via the SUMED
pipeline through Egypt.
Iraq can
export from Turkey's Ceyhan port by switching the flow of its
north-south pipeline but that avenue has been closed to it because
of sabotage
on its main northern pipeline.
The US Energy
Information Agency says the Gulf states ship 90% of their
combined crude oil exports -- around 17.2-mil b/d in 2003 -- through
the
600-mile Persian Gulf. Analysts say the slightest hint of disruption
through
the world's busiest international oil route would send oil prices
through the
roof in a market tight on spare capacity.
"If
this were to happen, you could see oil at $100 per barrel,"
said one
regional oil trader.
Crude oil
prices resumed their upward march Monday in reaction to Iran's
decision to end snap inspections of nuclear installations and
preparations to
resume uranium enrichment work after the International Energy
Agency's
governing board voted to refer the case to the UN Security Council.
Tehran has
insisted that its program is peaceful though Washington and
its allies suspect that behind its determination to carry out
highly sensitive
nuclear enrichment work is a desire to produce nuclear weapons.
The IAEA
resolution puts off any UN action against Iran for at least a
month to give time for diplomacy before the issue goes to the
UN Security
Council, which has the powers to impose political and economic
sanctions.
Iran, the
world's fourth biggest crude oil exporter and holder of the
second biggest gas reserves after Russia, says it wants to develop
a peaceful
nuclear program because it consumes roughly half of the oil it
produces. Iran
is currently producing just under 4-mil b/d. Exports averaged
2.7-mil b/d in
2005, according to International Energy Agency figures.
IMPLICT IRANIAN THREATS SPOOK MARKETS
Although
Jafarzadeh's comment is not official government policy, other
Iranian officials have said that any attempt by the international
community to
impose sanctions against Iran would lead to higher crude oil prices
in what
has been seen as an implicit threat to withhold crude oil.
Saudi Arabia,
which holds a quarter of the world's crude oil reserves,
has said it stands ready to make up for any shortfall on world
markets be it
because of war, natural disasters or higher demand.
The Persian
Gulf is no stranger to regional conflict though it has never
closed to maritime traffic. Its waters were mined during the Iran-Iraq
war of
1980-1988, when then Iraqi president Saddam Hussein attacked Iran
in a bid to
control the key Shatt al-Arab waterway. Iraq's 1990 invasion of
Kuwait and the
US-led war against Iraq all led to fears that the vital shipping
lane would be
restricted to oil tanker traffic but while oil prices soared,
oil exports were
largely unaffected. Rising insurance costs did add a risk premium
to the oil
barrel at the time and could do so again.
"The
Iranians are the only ones in the Gulf who have the capacity to
close the straight (of Hormuz) because they are the only ones
with ships and
military," said Judith Kipper, head of the Middle East program
at the Council
on Foreign Relations in Washington.
She pointed
out that the other Gulf littoral states relied for protection
on the US, which has a major naval base in Bahrain and a big airbase
at
Al-Udaid in Qatar.
"The
US reluctantly has the responsibility to protect the free flow
of
oil that fuels the US economy," she said. "It raises
the whole issue of energy
security," said Kipper.
US President
George W. Bush highlighted energy security in his State of
the Union address, where he called on Americans to end their addiction
to oil
and pledged to cut reliance on Middle Eastern crude oil by 75%
in 2025 by
investing in alternative fuels like ethanol and "clean, safe
nuclear" energy.
Of the Gulf
producers, only Saudi Arabia is a major exporter of crude oil
to the US market. The Persian Gulf accounted for 22% of US net
oil imports in
2003 and 12% of US demand.
Closure of
the Strait of Hormuz, the narrow straight that leads out to
the open sea, would be the ultimate energy security nightmare.
Just the
likelihood of disruption to Gulf shipping is enough to cause
jitters in a tight oil market where the available spare capacity
is not enough
to make up for the potential combined loss of volume from the
Gulf states.
Saudi Arabia,
with current production of around 9.5-mil b/d and capacity
of 11-mil b/d, can only make up 1.5-mil b/d of any shortfall.
The Gulf
oil producing states ship 90% of their crude oil through the
Strait of Hormuz. The US energy department's statistical arm,
the Energy
Information Agency, says that closure of the Strait of Hormuz
would require
use of longer alternative routes at increased transportation costs.
The IEA said
in its 2005 World Energy outlook for the Middle East and
Africa that the most significant oil supply disruptions of the
last few
decades occurred in the MENA region.
"In
previous conflicts, such as the Iran-Iraq war and the Iraqi invasion
of Kuwait, oilfields and tankers were systematically targeted.
Supply
interruptions can also result from deliberate political acts by
the producing
government," it said.
MILITARY OPTION
ON THE TABLE
The US has
not ruled out the military option against Iran for now and
Israel's acting prime minister Ehud Olmert said Sunday Tehran
would pay a
heavy price if it pressed ahead with its uranium enrichment plans.
"All
options, including the military one, are on the table," US
defense
secretary Donald Rumsfeld said in an interview with Monday's edition
of German
financial newspaper Handelsblatt.
But Washington-based
consultants PFC Energy believe the US military
involvement in Iraq made this unlikely. "The scale of the
US campaign in Iraq
limits the Bush administration's military options ..." said
Washington-based
consultants PFC Energy in a Feb 3 report on the Iranian crisis.
"Washington's
options are similarly constrained on the political front,"
it said, noting that none of the other permanent members of the
Security
Council favored an oil and gas embargo. "Absent an egregious
move by Tehran,
none of its P5 (permanent five) partners favor economic sanctions,
especially
any embargo that limits Iranian oil and gas exports. The economic
costs to
consuming nations would arguably be as painful as the financial
damage to
Iran," it said.
-- Kate Dourian,
kate_dourian@platts.com
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Platts
02 06 06
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