Bloomberg News

Iran Strait Block Would Shut In Gulf Oil Exports, Analyst Says

December 29, 2011

Dec. 28 (Bloomberg) -- Iranian threats to block the Strait of Hormuz, a sea corridor linking the Persian Gulf with international ports, would shut in most oil from that region, according to Manaar Energy Consulting.

“If sanctions interrupt Iranian exports, then other Gulf countries could make up for them, but if Iran blocks the Strait, all Gulf oil would be blocked,” Robin Mills, a Manaar Energy analyst in London, said today by phone. “The United Arab Emirates has a pipeline to Fujairah that could handle all of its exports, and Saudi Arabia could use its pipeline to the Red Sea for some of its oil, but the rest would be blocked.”

About 15.5 million barrels of oil a day, or a sixth of global consumption, passes through the Strait of Hormuz between Iran and Oman at the mouth of the Persian Gulf, according to the U.S. Energy Department. Crude futures have risen 7.4 percent since Dec. 16 on increased concern OPEC’s second-largest producer would close the passage in the face of pressure from the U.S. and European governments to abandon a suspected nuclear weapons program.

Iran’s official Islamic Republic News Agency yesterday cited Vice President Mohammad Reza Rahimi as saying the country would bar shipments through the strait if sanctions are imposed on its oil exports, while the country’s Press TV today cited Navy Commander Habibollah Sayyari as saying that the blockage would be “easy.”

Spare Production Capacity

Gulf Arab countries are prepared to make up for any loss of Iranian crude from the world market, the Associated Press reported today, citing an unidentified oil official from Saudi Arabia, the world’s biggest crude exporter. The report didn’t say how the nations would be able to do this.

Iran produced 3.56 million barrels a day last month, according to data compiled by Bloomberg. Saudi Arabia has spare capacity to pump an extra 2.45 million barrels a day and the remaining Gulf Arab members of OPEC can provide about 200,000 more, the data show.

Crude futures lost as much as 1 percent after rising yesterday for a sixth day, the longest run of advances since November 2010. Oil traded at $100.49 a barrel, 0.8 percent lower, at 2:52 p.m. in London.

“To some extent it’s starting to become the boy who cried wolf,” said Samuel Ciszuk, a consultant for KBC Asset Management U.K. Ltd. in London. “The Iranians are mentioning more frequently that they could close the strait and the markets don’t jump as much.”

Nuclear Program

The U.S. and European governments are seeking help from Arab and Asian allies to reduce Iran’s oil revenue to pressure the Islamic republic to abandon a suspected nuclear weapons program. The strategy includes a push by France and Britain for an embargo on imports of Iranian oil by the 27 European Union countries as soon as next month. Iran claims its nuclear program is strictly for energy.

The U.A.E.’s pipeline to Fujairah, east of the Strait of Hormuz, will start “very soon,” Oil Minister Mohamed Al-Hamli said this month. The link will have an initial capacity of 1.4 million barrels a day, rising to 1.8 million barrels, he said.

Saudi oil can flow through the kingdom’s East-West Pipeline. The line goes from the kingdom’s eastern province to the Red Sea port of Yanbu and can hold as much as 5 million barrels a day, according to a U.S. Energy Department website. Saudi Arabia produced more than 10 million barrels a day of oil last month, Oil Minister Ali al-Naimi said Dec. 6.

--Editors: Rob Verdonck, Rachel Graham

To contact the reporters on this story: Ayesha Daya in Dubai at adaya1@bloomberg.net; Robert Tuttle in Doha at rtuttle@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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