x Abu Dhabi, UAEWednesday 26 July 2017

Common interests hold the key to the region's oil security

It is now accepted wisdom that an oil blockade would hurt the instigators as much as their targets.

It is hard to believe that anyone is seriously considering slicing a canal through the heart of the United Arab Emirates to provide an alternative shipping route to the Strait of Hormuz. But recently the idea of a US$200 billion (Dh735bn) hole in the ground to replace a perfectly viable natural strait has resurfaced along with Iranian threats to blockade the conduit for one-sixth of world oil supply in the event of a US or Israeli attack.

It is now 35 years since Gulf oil exporters first experimented with blockading consumers. And it is now accepted wisdom that such measures actually hurt the instigators as much as their intended targets. Whatever the political dividends of the move, the decision by Arab oil exporters to choke off supplies in 1973 encouraged the world to seek alternative oil suppliers, not to mention alternative sources of energy.

The Islamic republic clearly saw the logic of this when it engaged in the "tanker war" with Iraq in the mid-1980s. During this four-year episode of self-harm, the two nations damaged more than 500 ships, killing 430 people, and embedded in the Western psyche a deep anxiety about the reliability of Gulf oil supplies. Behind the latest Iranian threats to block the strait is an erroneous assumption that the US would be the main loser from an attempt to halt the 15 million barrels of oil that emerge on tankers sailing into the Arabian Sea daily.

Of that figure, about one-fifth belongs to Iran itself. Tehran would not only lose its source of export earnings, but also suffer petrol shortages due to its heavy reliance on imported fuel which also passes through the strait. In the years since the embargo, oil importers have built up an impressive insurance policy in the form of a huge strategic stockpile. Set up after the first oil shock, the International Energy Agency now oversees inventories in its 27 member nations that could cover for almost three months of exports through Hormuz.

I wonder how the government in Tehran would fare without oil revenues, not to mention petrol. And this does not even assume any direct foreign military intervention, which must be a high probability judging from recent history. The subtext of the West's angst over the Strait of Hormuz is that the growing thirst for energy imports can only be sated through constant pressure on exporters to give up their "strategic" commodity.

Some might argue that food, another strategic commodity, has been ignored in all this worry over energy insecurity. This obsession with energy supply is equally evident in the fierce competition over pipeline routes in Central Asia, with regional powers offering soft loans and other sweeteners to entice oil and gas flows from this landlocked region. It is my contention that the rest of the world can and should rely more on the self-interest of exporters to supply its energy needs, even at a time of rising prices and growing nationalistic tendencies in many resource-rich nations.

Just in case, many Gulf states have already taken steps to reduce their dependence on the 34km wide stretch of water to the north of the Musandam peninsula. Saudi Arabia, the world's largest oil producer, has built a pipeline across the country which can switch about half its production to export terminals on the Red Sea coast if its Gulf route becomes restricted. Iraq has an export pipeline to the Turkish Mediterranean.

And the Emirates has not been left behind. A Government investment company, the International Petroleum Investment Company, is building a pipeline to carry more than half of Abu Dhabi's oil to an export terminal in Fujairah, bypassing the strait. As fuel demand grows in Iran itself, oil importers should be able to rely on mutual self-interest to keep Gulf oil flowing, whatever sweet terms may be on offer to open up a new sea route through the Emirates.