Saudi Arabia’s Pipelines Will Not Offset Iran’s Closure of Oil Chokepoints

BRANDON J. WEICHERT | THE WEICHERT REPORT

In a recent article, I concluded that, based on current trends, war with Iran seems likelier to occur in the near-future than any form of peaceful resolution. Internal instability in Iran, combined with the Trump Administration’s unequivocal anti-Iran regional foreign policy–to say nothing of the regional policies of Iran’s neighbors–have made peace an impossibility.

Tehran’s most recent bout of threats regarding two of the world’s seven maritime oil chokepoints only reinforces the intractable nature of the conflict between Iran, the Sunni Arab states, Israel, and the West.

For years, the Kingdom of Saudi Arabia–indeed, the world–has feared what increasing tensions with Iran might do to the vital global flow of oil. You see, oil (and natural gas) is potentially the most important global commodity. It literally powers everything in modern society. Vast amounts of fossil fuels are produced from volatile places, in regions like the Middle East (and elsewhere).

The advanced economies of the world consume the fossil fuel. Before the Second World War, the United States was the world’s leading oil producer. After the Second World War until recent days, the United States became a net importer of the world’s oil because American consumption was so high.

Even though the United States has been keen to diversify its reliance on fossil fuels coming from the unstable Middle East (notably, the United States suffered a horrific disruption during the 1970s oil embargo imposed by Muslim-majority states that were angered by American support of Israel), Washington still has a vested interest in ensuring the free flow of oil from oil-producing states.

Presently, the United States receives the bulk of its oil from Canada, Mexico, Saudi Arabia, and its own domestic sources. It is Europe and Asia which overwhelmingly receives the bulk of its energy from Mideast producers (countries like Saudi Arabia).

Securing the Global Commons

The United States fancies itself the world’s super cop. And, to be sure, whatever complaints the rest of the world may have about this score, most foreign countries are content to allow for the United States to spend the massive amount of money needed to secure the world’s trading routes.

The United States Navy truly polices the world’s maritime trading routes–through which a majority of the world’s goods pass daily–and ensures that the world economy suffers little disruption due to geopolitical tension. The geography of the Middle East, in particular, lends itself to geopolitical instability deleteriously impacting the bulk of the world’s oil flows.

The Strait of Hormuz separating Iran from Saudi Arabia, and the Bab el-Mandeb strait are two of the most important waterways through which the world’s fossil fuel is transported. Hormuz is greater in import than the Bab el-Mandeb, but together, these two areas are vital. The problem is, these two waterways are very near Iran. In the event of conflict, Iran has plans–and has previously acted on such plans–to shut down the waterways.

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Since fossil fuels are so important to the world, countries strive to keep the price low. In the United States, one key reason why the military is used to keep those vital sealanes in particular open, is to prevent the kind of disruption that Iran threatens. Should disruption occur, that would inject volatility into the world’s energy market.

If volatility increases, so too does the price of fossil fuels–on everyone, from countries to individuals. The higher the global price of oil gets–and the longer it remains high–the greater chance there will be for more geopolitical tensions globally. Higher oil prices due to hostilities between, say, Iran and its neighbors, will also have increasing levels of damage to the wider global economy.

Last week, Iran-backed Houthi rebels fighting in Yemen (which borders the Bab el-Mandeb) attacked two Saudi-flagged oil tankers transiting through the Bab el-Mandeb strait.

In response, the Saudis opted to close down oil shipments through the Bab el-Mandeb. As I noted, this is not an apocalyptic scenario, since the Bab el-Mandeb is nowhere near as important as the Strait of Hormuz. However, the closure–no matter how temporary–has caused global prices of oil to skyrocket.

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Pipeline Pipe Dreams

For their part, the Saudis have sought to reassure the world’s oil consumers that they can  ameliorate any significant disruptions by transitioning their oil flows away from the closed waterway to their vast pipeline network spanning the region. This is certainly true.

Unfortunately, though, despite massive expansions of their vast pipeline network over the years (largely in anticipation of needing alternative routes because of their historic rivalry with Iran), no pipeline in the world can totally offset the disruptions–and price hikes–caused by Iranian-induced closures of either the Bab el-Mandeb or, more significantly, the Strait of Hormuz (thankfully, the Saudi pipelines can handle the load of the Bab el-Mandeb closure–for now).

The Saudi East-West Pipeline, in particular, offers the Saudis a glimmer of hope of outmaneuvering the Iranian threats to their oil shipments at sea. At 1,200 km (or 745 miles), the pipeline connects Saudi Arabia’s oil fields in the east, to Yanbu on the Red Sea.

However, the East- West pipeline was originally constructed over 30 years ago and was used by the Saudis to offset their reliance on the Strait of Hormuz. Iraq used it also to offset Iraq’s need to transport its oil by sea during the Iran-Iraq War (in which both sides targeted each other’s oil transports in the Strait of Hormuz). Beginning in 2012, Saudi-ARAMCO, the state-owned enterprise that is responsible for producing and selling Saudi Arabia’s fossil fuels, began a massive expansion of the pipeline.

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At present, this pipeline carries roughly 5 million barrels of oil per day. Saudi improvements to the East-West pipeline allow for potentially 7 million b/d of oil to pass through. However, about 17 million b/d of oil passes through the Strait of Hormuz. While relying on the East-West pipeline to mitigate the cost increase of Iran closing down Hormuz, it would not totally remove the threat.

Remember: the goal of everyone other than Iran (and possibly Russia, which needs higher prices to fuel–if you’ll pardon the expression–its economy and military modernization) is keep the global price of oil as low as possible.

There are also technical limitations to the pipelines. Without getting into the particulars of pipeline science, in order to push large quantities of fossil fuels, such as crude oil, through long-running pipelines, a chemical known as a “Drag Reduction Agent” is required.

According to the folks at Oil & Gas Journal:

“Drag-reducing additives or drag-reducing agents (DRA) are long-chain polymers of very high molecular weight made of alpha olefins.”

Unfortunately, as was pointed out by a team of Stanford researchers some years back, use of the Saudi pipelines can only be economical, so long as DRA stocks hold out. Should Saudi Arabia need to rely on its vast pipeline system for transporting more than it currently does–and should it do so indefinitely–it will place a strain on existing DRA stocks (more can be produced, of course) and, in any event, cause global prices to increase further–thereby negating the entire purpose of using the pipelines to offset closures of either the Strait of Hormuz or the Bab el-Mandeb.

What’s more, as the Oil & Gas Journal writers noted in 2016, the use of DRA to increase the speed and efficiency of oil flowing through long pipeline networks is limited to external factors of the pipeline itself. In other words, the efficacy of DRA is impacted by the physical makeup, age, etc. of the pipelines that the oil is flowing through. Considering the age of the East-West pipeline, and depending on other exigencies, costs will increase the longer or harder it is to push the oil through at an efficient clip.

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Saudi Arabia’s pipelines.

Whether at Sea or in a Pipeline, Iran’s Military Can Still Threaten Oil Flows

Meanwhile, some have argued that reliance on the pipelines would be better because it would mitigate the physical threat that Iran posed to oil shipments. By reducing the flow of oil through either the Strait of Hormuz or the Bab el-Mandeb, sending it through land-based pipelines, Iran could not interdict the flow of oil.

This is false.

Given Iran’s present military capabilities, and the fact that Iranian forces have spread throughout the region (generally along the Shiite Islam population centers–known as the Shia Crescent), the pipeline network would be threatened.

First, regardless of their nuclear weapons capability, Iran’s geographical proximity to Saudi Arabia as well as Iran’s missile technology, means that the pipeline would be a prime target for Iranian military planners looking to damage their chief regional rival.

Second, Iran’s use of terrorism means that it could easily dispatch a handful of guys to a sparsely populated area of Saudi Arabia, where the pipeline would cut through, and use a car bomb to damage the pipeline.

Sure, the Saudis could repair the damage. In the meantime, though, a large chunk of the world’s oil flow would be isolated; prices would explode; consumers would panic; a spiral of global hostilities would occur.

Hubris All Around

In Washington, D.C. there are two odious assumptions made about Iran. The first is that Iran wouldn’t be crazy enough to court what would surely be a losing war with the West over oil. Second, should war occur, the United States would prevail. Such hubris has been experienced by the democratic globalists who control Washington before.

No one truly thought that Saddam Hussein would be insane enough to resist George W. Bush’s brinksmanship. Yet, Saddam was. Further, Saddam was stupid because he disbelieved that the Americans were serious in 2003. He bluffed his way forward and bet the house on the falsehood that, ultimately, America would back down from its belligerence.

Iran is also making similar calculations. They do not think that the United States is serious about threatening Iran. Tehran fundamentally understands the importance that Washington (and the world) places on oil and keeping its price low for consumers everywhere.

The presently-besieged mullahs in Iran believe that they can rattle their potentially nuclear-tipped sabers at the West, gain points with their discontented citizens, and not suffer the wrath because the mere threat of disruptions to the oil flow would be enough to get the West to back down.

Conflict is Coming

And, God forbid, should actual hostilities break out, the Iranians–unlike the Iraqis–are not so easy to break. Yes, should the military might of the United States be brought down on Iran, the West would inevitably crush Iran.

But, the costs would be considerably higher than Iraq (or Afghanistan). Unlike the ethnic Arabs of Iraq, the ethnic Persians of Iran have a long history of fierce resistance to foreign invaders–and as recently as the Iran-Iraq War proven their willingness to die in droves to resist foreign invasion.

The whole point of Iranian strategy, whether in fighting or in targeting global oil flows, would be to increase the cost on the West, the Sunni states, and Israel to such a point that toppling the regime in Tehran would be unpalatable to the attackers. The Iranians have already forced the Saudis to close down the Bab el-Mandeb. Tehran has threatened President Trump that they will directly close down the Strait of Hormuz.

Yes, the United States would be able to reopen Hormuz, but investors would be skittish and volatility would remain high, causing the costs to increase for consumers.

Now, the threat of American military reprisal is serious enough that Iran, despite nasty tweets stating their intention to close off the Strait of Hormuz, has not yet acted to do so. But, the increasingly threatening nature of the domestic unrest in Iran against the regime–coupled with the Trump Administration’s imposition of a new round of sanctions and a further isolation of Iran on the world stage–might precipitate the kind of reckless action by the desperate mullahs that few consider possible at present.

Fact is, under present conditions, without some form of peaceful mitigation of tensions, it is likely that some form of conflict with Iran is at hand–this is especially true if the Iranians blockade the Strait of Hormuz. The United States, at that point, would have no point but to respond immediately. There are simply no viable alternatives out of transporting Mideast oil through the Strait of Hormuz.

 

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