The oil crisis Saudi Arabia cannot solve
Saudi Arabia's CEO Amin Nasr's message to the press that oil flows to the market is guaranteed should be taken with a pinch of salt.
Looking at the current volatility in Persian / Arabian Gulf and the possibility of temporary closure of the Hormuzestream, Aramco CEOs message may be slightly over-optimistic. In reality, Aramco will not be able to keep the required crude oil and product volumes flowing into Asian and European markets in the event of a complete Hormuz block. Although Aramco owns and operates a crude oil pipeline with a capacity of 5 million bpd, carrying crude 1200 kilometers between the Arabian Gulf and the Red Sea, much more is needed to keep the oil market stable.
Nasr's flow to stabilize the market is commendable, but should be seen as an attempt to fear fears of traders and financial analysts, especially just before the OPEC + meeting in Vienna next week. Nasr pointed out that Aramco (aka Kingdom) is capable of delivering sufficient raw through the Red Sea and points out that the necessary pipeline and terminal infrastructure is there. But which analysts tend to forget, Nasr's statement is only related to Saudi's oil export volumes, which are unlikely to be higher this summer than around the level this pipeline can support. The real problem, if it comes to a complete conflict, is that not only Saudi oil is threatened.
Currently, between 20-21 million bpd of crude oil and petroleum products are transported via the Hormuz stream. Saudi exports are a big part of it, but also the UAE, Iraq, Kuwait, Bahrain, Qatar and Iran have to look at several routes. A closure or military action in the region will lead to temporary disruption to all shipping. In addition to the options already on the table, such as the Saudi onshore pipeline and the UAE's Fujairah pipeline, there are no other real alternatives, as overland or rail transport is minimal. Transmission volumes via Saudi and UAE pipelines are no choice, as the total capacity of the two is less than 10 million bpd, and does not even represent 50% of today's maritime flows through Hormuz. Another thing that should be mentioned is that pipelines cannot send raw and raw materials at the same time. Related: $ 4.5 trillion: The price tag of a fossil fuel-free USA
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Another consequence of a blockade would be that you Most available VLCCs and other tankers will either be in the Persia Bay (and blocked) or will not be diverted. Before the market has found a solution for this, days and probably weeks will have passed, and it can be expected a price tag for all products. This will probably also be the case for LNG and other commodity flows.
Few analysts talk about oil field safety and pipeline availability. Any military adviser will set these options as part of his 1 phase military action plan. If Iran were to be attacked, or faced with an operation of an opponent, all Arab oil and gas infrastructure would become a legitimate offensive target (at least in Tehran's eyes and its proxies). Geographically, Tehran has been dealt the best cards. Looking at the majority of oil and gas production resources and infrastructure in the Arab world, especially in Saudi Arabia, the UAE or Iraq, everything is in the reach of short-range motors, fighter jets and regular drones. Any move towards Iran will result in a full-scale attack on Saudis Eastern Province (producing 80% of all its oil and gas), Abu Dhabi's offshore oil infrastructure and regional pipelines. Looking at history, denying energylessness and reducing opponents' stability is a no-brainer in military strategy. Related: Shale Executive sees "Another round of bankruptcies" Looming
It can be taken for granted that Iran, Houthis, Hezbollah and others have already prepared their oil and gas infrastructure strategy. Washington, Riyadh, Abu Dhabi and even Manama will be frantically looking for answers, but the geographical situation is disastrous.
Quelling fear in the market is the right thing to do, but reality must also be addressed. Nasr's report is that an oil company's CEO takes all precautions to deal with an accident. ADNOC sultan will do the same. Nevertheless, the oil market is currently a victim of geopolitical power forecasts by emotional leaders who replace rationality. This confrontation is one of a possibly unprecedented arrangement, not of oil (as skeptics again will state), but with oil as a weapon of defeat or survival. The continued reference to the Iran-Iraq war of 1980-1988 is out of touch with reality. At this time it will not be Iran to refuse to support or trade with Iraq, but a possible Arab-Iranian confrontation led by the United States if no countermeasures are implemented.
Asian consumers must prepare for serious price increases in the most optimistic scenario, but also for the closure of much of the economy. Hormuz will not stand alone, more to be considered, especially proxy reactions in Yemen (Gulf of Aden) or East Med (Hezbollah). Negative consequences for Europeans are also on the picture. Saudi Arabia can do a lot, but rescuing the world economy if the Gulf explodes is not one of its capabilities.
By Cyril Widdershoven for Oilprice.com
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