TSG IntelBrief: The Gate and the Straits: Oil Crises Ahead?
July 7, 2011
In our latest Atmospheric report, The Soufan Group examines the implications for western oil supply chain security following the deployment of an Iranian submarine to a strategically vital chokepoint in the Middle East. The report also examines the recent statement by an Iranian naval commander that Iran remains ready, willing and able to close the Straits of Hormuz, affecting 17% of the global oil supply as well as the eastbound supply chains. In the past such statements have been dismissed as hollow. However, with the Iranian economy suffering from the effects of international sanctions, and the leadership in Iran becoming increasingly bellicose, we are concerned that such threats should not be lightly dismissed. Our report examines the implications and possible outcomes which will impact the supply of both oil and commodities to east and west oil alike.
Table of Contents
The Gate and the Straits – Overview
Two of the world’s critical waterways, the Straits of Hormuz and the Bab al-Mandab, are found at the geographic and political center of multiple Middle East crises that are threatening to affect—to a greater or lesser extent—almost every country whose oil and commodities transit those waterways. The crises include the various Middle East revolutions creating turmoil in the region but also the increasingly painful economic sanctions imposed by the U.S., the U.N. and the European Union (E.U.) on Iran as punishment for its alleged nuclear weapons’ program.
The geo-political impact of these crises represent a risk, not only to regional security, but also to global energy supplies and the economies of Europe and the Americas, which have strategic supply chains both for hydrocarbons and commodities flowing through these two waterways.
The Straits of Hormuz are located between Oman and Iran, (circled in red) and connect the Persian Gulf with the Gulf of Oman and the Arabian Sea. The Straits are, according to the U.S. Energy Information Administration (EIA), the world’s most important oil chokepoint, due to its daily oil flow of roughly 33% of all seaborne traded oil or 17% of oil traded worldwide. He who controls the Straits of Hormuz, controls a strategic fuel supply. One of these parties is Iran, the other the Sultanate of Oman.
The Bab al-Mandab is the 18-mile wide gate that separates Africa from Arabia; the south side is bordered by Djibouti and Eritrea, and to the north is Yemen. In nautical terms, the Bab al-Mandab also joins the Red Sea to the Indian Ocean through the Gulf of Aden. Bab al-Mandab is the Arabic term for the “Gate of Tears” and refers to the hazardous nature of transiting the strait. The waterway is strategically important because it is considered by the EIA to be one of the world’s oil transit chokepoints (see red marker above).
To the south of the Gate of Tears lies Yemen—a non-OPEC oil producer—one of whose sole sources of income is oil revenue. However, the current parlous political situation in Yemen means that oil security is being undermined – there has been a long history of attacks on pipelines, personnel and installations, and the recent catastrophic collapse in public order means that the oil sector is particularly fragile.
Further political disruption—or the fall of the government—could also disrupt the flow of oil shipments through the Bab al-Mandab, as there would be nothing to stop pirates or Al Qa’ida in the Arabian Peninsula (AQAP) from operating against the maritime oil trade routes from bases in Yemen. In fact, AQAP has already established new footholds on Yemen’s south coast. Any disruption would create an inexorable upward pressure on already very high world oil prices.
Two critical oil and supply chains feeding Europe crude oil and other commodities are thus caught in the middle of the crises affecting two of the most unstable geopolitical regions in the world. Any threat to close these vital portals would have far-reaching consequences impacting the economies of the west as well as Egypt. And that is precisely what has happened.
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