Threatening the security of the Strait of Hormuz, a crucial shipping route linking Middle East oil producers to international markets in Asia, Europe, North America and beyond, can translate into a potential risk for the world economy.
Close to 20 million barrels of crude and condensates are shipped through the strait per day. With global oil consumption amounting to about 100 million bpd, that means almost a fifth of world demand passes through the strategic strait.
Most crude exported from Saudi Arabia, Iran, the UAE, Kuwait and Iraq—all OPEC members—is shipped through the waterway.
It is also the route used for nearly all the liquefied natural gas (LNG) produced by the world’s biggest LNG exporter, Qatar. The tiny Arab state accounts for 25% of the global LNG market by exporting 60 million tons of the products per year.
There are two other important straits namely Bab el-Mandeb and the Suez Canal which are used by oil tankers to transfer their commodity to international marker, yet the number of barrels passing through them barely stands at 8 mbpd, according to oil analytics firm Vortexa.
The Strait is 33 km wide at its narrowest point, but the shipping lane is just 3 km wide in either direction.
About 50,000 ships navigate through the waterway annually, of which 17,000 are oil tankers which head to Asian countries whose imports have doubled from the Persian Gulf oil producers.
Take China as a case in point that imports 40% of its crude through the strait, meaning any disruption in tanker traffic in the region will definitely affect not only China's economy but also the global economy.
Experts believe that not maintaining security in the Strait of Hormuz will adversely affect economies in the US and Europe as well because world economies are closely interconnected.
Saudi Arabia the United Arab Emirates have sought to find other routes to bypass the strategic strait, including building more oil pipelines, which according to the US Energy Information Administration have failed to serve their purpose due to technical and security issues.
An alternative route for Saudi Arabia’s oil exports that bypasses the Strait of Hormuz is Petroline, a 1,200 km long pipeline built in 1981, which was laid to carry around five million barrels of crude per day but cannot transfer more than 2 mbpd.
The bottom line is that any disruption to oil production, loading facilities or key shipping routes such as the Strait of Hormuz will have a severe impact on Asian as well as global economies due to the fact that Asia gets nearly 70% of its crude oil from the Middle East.
