The Need to Diversify Gulf Oil Export Outlets

  • 26 March 2007

Supplying oil through dependable export outlets constitutes a very important need for the energy market in particular, and the world economy overall, so that the easy flow of crude oil from oilfields to the markets is ensured—a move separate from increasing the quantity of production. The existence of well-endowed oilfields may not mean a lot if there is an absence or inability of outlets to supply oil from oilfields to the consumer markets. For example, the oil from the Caspian Sea has for a long time failed to make an impact on the world oil market as it is denied the necessary export utilities to transfer its production to the markets. In the last couple of years, we have seen the anxiety caused by disturbances around supply lines in some production areas affecting trends in the world’s oil markets.

Probably the biggest cause of anxiety regarding oil supply routes emanates from the Iranian nuclear program, and the threat of military conflict emanating from it in the region. This region supplies the world with more than a quarter of its oil needs, and contains a third of the world’s reserves of crude oil. In fact, this crisis has deeply affected oil markets leaving sharp fluctuations in prices, especially over fears of oil supplies through the Strait of Hormuz that connects the Arabian Gulf with the Arabian Sea. Iran has repeatedly threatened that it would respond to any military action that it might be subjected to by preventing oil from passing through this Strait. It is considered the largest and most important artery on the world oil map, because of the quantity of oil that passes through it, ranging from 15-16.5 million barrel per day in the Gulf area, or what amounts to 20% of the world production. However, because the passage is only 34 kilometers wide at some points, this artery is considered the most treacherous paths as it is subject to dangers caused by geopolitical conflicts and tensions.

For this reason, oil-producing countries in the Arabian Gulf region find that diversifying sources of export, in order to lessen the dependence on the Strait of Hormuz contains a political and economic benefit of utmost importance. This originates from the need of oil-producing countries in the country to provide the flow of vital oil exports to markets in a way that is free of threats, in addition to the need of these countries to ensure stability of oil markets. Reports published recently talk of the intention of oil-producing countries in the Gulf region to establish new export outlets that bypass the Strait of Hormuz for transporting large quantities of crude oil by land and through pipelines to the Arabian Sea. Countries in the region, therefore, have started to understand the importance for increasing number of export outlets to avoid major dependence on a channel that is infested with threats. Despite the cost of these projects and the effects it could leave on vital and important commercial centers, it is becoming necessary in light of the current tension situation for the exports from the region to be free of all obstacles that could stand in its way or could affect it adversely.