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Pipeline of Hope

The lingering political tension involving Iran is of deep concern, to say the least.

| | Nov 15, 2012 | 3:01 pm
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B Surendar

B Surendar

The lingering political tension involving Iran is of deep concern, to say the least. Perhaps no other industry directly feels the effect of the tension as much as does the oil shipping industry. I got an understanding of the concern during the 5th Annual ME Ship Tech Conference, in mid-October in Dubai, particularly during an interview with Jamil Al-Ali, Manager Fleet Engineering Group, with the Kuwait Oil Tanker Company. Al-Ali said he hoped the situation could be defused and resolved in a peaceful manner, in order to avoid an escalation, which could have a negative impact on the region and a knock-down effect on the global economy. “We have to understand that 30-40% of the world’s oil passes through the Strait of Hormuz, so any tension in the region can take oil prices up and lead to double-dip recession,” he said, adding, “There is a certain level till which it is good if prices go up, but after that it is not sustainable for anyone.”

The UAE, in particular, has taken steps to bypass the Strait of Hormuz in the event of an escalation of tension. In July, the Abu Dhabi International Petroleum Investment Company opened a new 400-kilometre-long oil pipeline stretching from Abu Dhabi to Fujairah, which has allowed Abu Dhabi to export 70% of its crude oil through waiting tankers in the Gulf of Oman, whose waters lap Fujairah.

This move by Abu Dhabi served to ease the concerns of global oil markets in terms of being able to receive a portion of the crude oil from the emirate in a stable and secure manner – the new pipeline can transport 1.5 million barrels a day of crude.

While the strategic thinking on the part of the UAE is laudable, there is a need for a mechanism to ensure that oil and gas from the rest of the GCC also have a safe passage. With the exception of Saudi Arabia, which has a pipeline coursing through its land, from the eastern to the western province, there are no other alternative routes. In the event of an escalation, the impact on the economies of the region could be significant – to cite an example, Qatar entirely relies on the Hormuz waterway to transport its LNG – the bulwark of its economy.

Such talk of oil-geddon falls lightly on some of the powers that be, though, who say the possibility of disruption of supply through the Strait of Hormuz is unlikely, considering Iran needs the waterway just as much for its exports. But there always remains a ‘what-if’ danger. Even a flake of peril does not sit down well with a world besieged by a fragile economic recovery. Simply put, the thought of having to re-live 2008 is not a welcome one.

– B Surendar

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