by Kevin Killough
About 14 million barrels of crude oil per day pass through the Strait of Hormuz, which the U.S. is blockading after negotiations with Iran failed. Reserves and alternative routes can address some of the shortfall, but some are temporary. Petrochemicals and LNG have almost no alternatives.
President Donald Trump made good on his promise to block sea traffic in the Strait of Hormuz if an agreement with Iran couldn’t be reached, essentially quarantining Tehran's energy from the global marketplace.
The strait is a vital artery through which massive amounts of crude oil, liquefied natural gas and petrochemicals pass. There are alternative routes and some options that can relieve some of the global shortfall, but these are limited and some are temporary. Trump is likely hoping to force the Iranians to the table by wreaking havoc with their production since they have limited storage.
Tim Stewart, president of the trade group the U.S. Oil and Gas Association, told the John Solomon Reports podcast the blockade presents pressure on the Iranian regime's infrastructure and finances. If oil can't get to market, Iran can't buy imports, and if it can't send oil to market, it has nowhere to go once its storage is full, which could happen in as little as two weeks, Stewart said.
"What happens is, if you have nowhere to put the oil, then you have to shut those wells. And when you do that, that builds up the pressure. And that pressure then can do permanent reservoir damage to your fields. It's not theoretical. I mean, these prolonged shut-ins can leave hundreds of thousands of barrels a day offline forever," Stewart said, adding that, with the blockade, the Trump administration "went for the jugular."
The Trump administration "went for the jugular," initiates blockade
Whatever happens in the coming weeks, some experts are saying that it could be well into next year or longer before the world’s energy markets return to where they were before the conflict began. All options to address shortfalls will now need to be explored to minimize the global impact.
The U.S. Central Command (CENTCOM) announced that, acting on a directive from the president, the blockade of all maritime traffic entering and exiting Iranian ports would start Monday at 10 a.m. ET.
“The blockade will be enforced impartially against vessels of all nations entering or departing Iranian ports and coastal areas, including all Iranian ports on the Arabian Gulf and Gulf of Oman,” the statement said.
Trump used his own words on Truth Social Monday morning to describe the blockade. “Warning: If any of these ships come anywhere close to our BLOCKADE, they will be immediately ELIMINATED, using the same system of killing that we use against the drug dealers on boats at Sea,” the president said.
Some options available for crude oil
Prior to the collapse of negotiations over the weekend, the Energy Policy Research Foundation (EPRINC) estimated how much oil could take a different route to markets, and how releases from various reserves could add to that amount.
While it’s widely reported that 18–20 million barrels of petroleum exports pass through the Strait of Hormuz, which is about 20% of global petroleum liquids consumption, that includes a wide range of petroleum products.
The Energy Information Administration estimates that 14.2 million barrels per day of crude oil and light-oil byproducts pass through the strait. These are the products that have logistical alternatives and policy mechanisms to address the shortfalls.
Prior to the U.S. blockade, there were also some Iranian exports and Iranian-controlled exports that could add to the global market, which would have left the world with a net shortfall of 1.9 million barrels per day. Now, those 2.5 million barrels per day that were exported out of Iran or paying the Iranian toll and passing through the strait are off the table. That leaves a total global shortfall of 4.4 million barrels per day.
Alternative routes and reserves
There are two logical alternatives: the Saudi Yanbu East-West Pipeline and the Iraqi Kirkuk Pipeline. The Yanbu has a nameplate capacity of 7 million barrels per day, which is the total amount it can handle, and it’s currently pumping 5 million barrels per day. The Kirkuk has a nameplate of 0.3 million barrels per day, at which it’s currently operating.
Some oil is stored at sea in tankers and specialized facilities. In mid-February, there were approximately 222 million barrels in this storage, which contained Russian, Iranian and Venezuelan oil. Some of that was sanctioned, but with the sanctions lifted and black market operations continuing, EPRINC's conservative estimates say resources could provide 1.5 million barrels per day.
Matthew Sawoski, senior policy analyst with EPRINC, said that currently there appear to be no plans to reimpose sanctions, which would threaten some of these supplies. So, for now, they can likely be counted on. However, they are finite volumes and will only help temporarily.
The Trump administration last month announced it would be releasing 172 million barrels of oil from the Strategic Petroleum Reserve. This will add another 3 million barrels per day to the options, but like the floating storage, the SPR is only a temporary policy mechanism.
National policy options
None of these alternative options apply to LNG or petrochemicals, which have no alternative routes. Ultimately, the globe will experience significant shortfalls in energy products for possibly years. Nations are exploring policy options at home. The European Commission next week will consider a suite of policies aimed at lowering energy costs, including cutting electricity taxes and lowering power grid charges.
Having bet on renewables taking over fossil fuels, most countries of the European Union eschewed nuclear, oil and gas production, leaving them dependent on imports for most of their crude oil and liquefied natural gas (LNG). The European benchmark prices for gas are up 48% since the conflict began, according to Bloomberg News.
Farmers and truckers in Ireland last week blocked access to the country’s only oil refinery, as well as other petroleum infrastructure, to protest high gas prices. The Irish prime minister on Sunday agreed to offer fuel tax cuts to help quell the unrest, the Associated Press reported. Western Australia is contemplating tapping its diesel stockpiles, according to Bloomberg.
The blockade is also raising risks of drawing China into the conflict. Spokespersons for the Chinese foreign ministry said Monday that the U.S. blockade is against the interests of global nations. China is asking that the conflict be achieved through political and diplomatic means, Reuters reported.
Responding to reports that China was providing Iran with advanced missile and air defense systems, Trump told reporters last week that China would face serious consequences for supporting America’s adversary.
Long, rough road ahead: "The leaders in Iran are not rational, reasonable human beings"
David Blackmon, an analyst with more than 40 years of experience in the oil and gas industry, doesn’t think the conflict will end with successful negotiations. He said on his “Energy Absurdities” Substack that negotiations with Iran are likely to be as effective as negotiations were with the Japanese at the end of World War II.
“The leaders in Iran are not rational, reasonable human beings. They are brainwashed religious ideologues who cling to the myths of a death cult in their quest to martyr themselves and gain access to the promised 72 virgins,” Blackmon wrote.
Trump said on Monday that Iran is ready again to negotiate, according to Reuters, but it wouldn’t be the first time the president suggested a resolution was near.
As the largest producer of oil and gas, the U.S. will be shielded from the worst of the impacts, but not entirely. With no resolution in sight, whatever the impacts, they will be felt for a long time to come.
Kevin Killough is the energy reporter for Just The News. You can follow him on X for more coverage.
Source: https://justthenews.com/politics-policy/energy/strait-hormuz-blockaded-globe-has-limited-options-address-energy-shortfall
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