ADVICE TO IRAN : CAREFUL WHAT YOU WISH FOR

There are Alternatives to the Strait of Hormuz 

Clifford Krauss 

 

 

Iran has made control of the Strait of Hormuz its first priority in talks with the United States. But the global oil markets have other options that could weaken Iran’s options over the medium and long term.

Necessity is the mother of invention.

When it comes to oil, demand often generates supply. The OPEC monopoly and rising oil prices in the late 20th Century forced the United States and other industrial nations to develop new policies to conserve oil and generate new energy sources. Renewables like wind and solar, fracking to produce more oil and gas and more recently expanding oil production in Guyana and Brazil, are just a few response examples.

This week the Wall Street Journal reported that Chevron is moving towards investing in two Iraqi oil fields while exploring the construction of a pipeline to connect Iraqi oil with the Syrian coast for export — a nice way to escape the Iranians. This is only the latest development in a trend that should concern the Iranians: Persian Gulf regimes and their state energy companies are spending heavily on new pipelines, railways and energy storage to bypass Iran’s stranglehold on the Strait of Hormuz.

Approximately 20 percent of the world’s oil supplies once went through the Strait, which was free of blockage until the U.S. and Israel attacked Iran earlier this year. But there are other oil transport options, which will become available due to some positive developments in the Middle East. The fall of the Assad regime in Syria closed a supply passageway between Iran and Lebanon to arm Hezbollah. And now, the new Syrian government is seeking better relations with the West and has no love for Iran.

A consortium led by Chevron, the Journal reports, could rebuild a pipeline from northern Iraq to the Syrian Mediterranean port of Baniyas. That pipeline was a major passage for oil until damaged during the American invasion of Iraq in 2003.

Iraq was once a major power within OPEC, producing better than 4 percent of global supplies. But the U.S. invasion and more recently the closure of the Strait of Hormuz greatly reduced Iraqi exports. Iraq remains an unstable place but a tentative democracy has taken hold, and Iran’s capacity to back Shia militias has been curtailed to a degree. Iraq’s new Prime Minister Ali Al Zaidi has made encouraging U.S. investment a priority.

In the meantime an energy transition is taking place around the world despite hostility to renewables from the Trump administration. Electric car sales stumbled in the United States in recent months but they continue to be strong in Europe and Asia. Costs of renewables are in a long term decline. The Iran war can only encourage these developments.