Choking Hazard – The story of two Chokepoints

The US’s Energy Information Administration (EIA) defines oil chokepoints as narrow marine routes that are extremely crucial and important to the oil movement through the sea. In 2015, more than 61% of all oil production moved through marine routes, making it crystal clear why it is important to keep these routes, particularly the chokepoints, insulated from geopolitical risks and conflicts. However, two choke points, in particular, seem to be on the verge of endangering oil trade between The Persian Gulf and East Asia. Let’s see how, when and why this will pan out.

Overview

Oil tankers take designated and shortest routes to their destinations and almost all have to pass through one or more of maritime chokepoints, which are basically really narrow (the narrowest choke point is less than 2 miles wide!) marine passages that are crucial to oil & gas marine logistics. There are eight major chokepoints in all in the world and a closure or disruption to anyone could cause delays in delivery and alternate routes of thousands of miles more to get to the destination. This will have a singular impact on the oil price, it’ll rise unprecedentedly.

The biggest and the busiest chokepoint of them all is Strait of Hormuz near Oman and Iran, with a staggering 17 million barrels of oil passing through it each day and accounting for 30 per cent of all maritime petroleum trade.

Followed by, the Strait of Malacca, which sees nearly 15.5 million barrels of oil pass through it daily. It is also the shortest waterway that connects the Indian Ocean to the South China Sea and the Pacific Ocean. At its narrowest, it’s 1.7 miles wide, strictly restricting the kind of vessels that can pass through. And given its tight quarters and limited elbowroom, it has also become a hotbed for piracy in recent years.

Cape of Good Hope, the southernmost tip of Africa, is technically not a chokepoint because it is open from one side, but is considered one simply because of its importance to maritime trade routes. At a little shy of 5 million barrels per day, it makes up 9 per cent of all water-borne oil trade.

Bab el-Mandab, which connects Red Sea to Gulf of Aden and eventually the Indian Ocean, is one of the most crucial chokepoints and is always under the watchful eye of international oil players; simply because if it were to shut shop for whatever reason, One would have to travel around Africa, passing Cape of Good Hope.

The other chokepoints are Danish Straits (3.3 million barrels per day), Suez Canal (3.2 million barrels), Bosporus (2.9 million barrels) and Panama Canal (0.85 million barrels).

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The Strait of Hormuz: Taking heat from the Shia-Sunni enmity

The busiest chokepoint in terms of volume that it sees has Iran on one side and the UAE on the other. It is the only window to East Asian markets for seaborne oil from Bahrain, Iran, Iraq, Kuwait, Qatar, UAE and Saudi Arabia. Out of these, only Iran and Saudi Arabia have alternate shipping routes. Persian countries depend heavily on the export of oil that is through this Strait and, thus, it is of economic and political concern to keep this strait immune to geopolitics.

Click here to read our blog, Middle East- A saga of geopolitics around Oil and Gas

However, disruptions could occur because of Shia-majority in Iran and Sunni-majority in Saudi Arabia, getting into a power conflict to control the strait. Iran threatened to close the strait and planted naval mines to assert its power in the region. Saudi Arabia bit the bait and flexed its muscles by conducting extensive naval drills in the region. Obviously, it is nail-biting time for other Gulf countries that are trying to hedge their risk of the eventuality that Iran and Saudi may lock horns. These countries are looking at keeping their options open and are seriously considering underground oil pipelines for their produce. But here the problem is that there is no way that pipelines can come close to oil carriers in terms of volume that can be moved. But something is better than a grinding halt, right? Second, they are considering strong alliances with countries like the US who have their own vested interests in keeping the Hormuz Strait up and running. In 2016, 18 per cent of the oil that the US imported came from the Gulf. As one can see, a seamless working of the strait is in US’s favour.

The Strait of Malacca: Tokyo and Beijing’s war-ground

Roughly 25 per cent of all seaborne oil passes through The Strait of Malacca. It’s 550 miles long and runs past Indonesia, Malaysia, and Singapore. At its narrowest point, the strait is about 1.7 miles wide. This makes navigating these waters in small ferries and boats very easy. In other words, piracy is on the rise as local outlaws target the smaller oil carriers that are restricted in size to pass through the strait. But there is also a bigger, more serious issue to counter.

Both China and Japan are heavily dependent on oil imports that come through the Strait of Malacca; 80 per cent in the case of China and 60 per cent for Japan to be precise. Both countries have a long history of hostility towards each other and recently they have shown a willingness to extend their feelings for each other over The Strait of Malacca too.

Japan has ensured that its international trade routes are secure with its alliance with the US over this. On the other hand, China is shaking hands with all the countries that are around the Strait of Malacca, especially Indonesia. It has made clear that it wants to be the biggest muscle in the neighborhood.

Both these chokepoints, Straits of Hormuz and Malacca, must remain free of politics; and countries with interests in oil trade routes involving these two chokepoints must ensure this. Else we are headed for shortened supply, excessive delays and sharp price-rise in global oil markets.