Fires in the Gulf: How a tiny waterway worries international oil traders
Oil prices soared four per cent last Thursday as observers reported seeing smoke rising from a Norwegian oil tanker off the coast of the UAE.
Later, reports emerged that a second tanker, the Japanese-owned Kokuka Courageous, had also taken damage and its 21 crew were evacuated.
It happened as Japanese Prime Minister Shinzo Abe was in Tehran to help ease tensions between Iran and Washington.
Days later, is still unclear what happened. Theories have ranged from torpedoes to limpet mines, but Saudi and American fingers are pointing squarely at Iran. The Islamic Republic denies responsibility.
The attacks came about a month after four other ships were hit nearby, and Iran-backed Houthi fighters from Yemen launched attacks on Saudi oil infrastructure inland.
Strait to the point
The ships were travelling on a route which leads through the Strait of Hormuz which, according to estimates, accounts for a fifth of the world’s crude oil movements.
The 25-mile wide strait connects international shipping routes to the Persian Gulf, and carries oil from Saudi Arabia, the UAE, Kuwait and Iraq, as well as gas from Qatar.
A notable weapon in Iran’s arsenal, even the threat to close the Strait of Hormuz is enough to spark fears in international markets.
It would doubtlessly cause problems in China and Japan, both of which rely on the route for more than three quarters of their imported oil.
What did the oil price do?
There has been huge downward pressure on oil prices in recent weeks, with Brent crude falling from nearly $72 per barrel to $62 in a month.
The attacks helped push up the price from its lowest point since January, but have not yet been enough to outweigh other factors.
The risk of war
Though both sides in the conflict are flexing their muscles, neither is likely to want full-scale conflict.
Analysts say that there is little appetite in either Saudi Arabia or Iran for what would be a mutually destructive war.
“The kingdom does not want a war in the region but it will not hesitate to deal with any threats to its people, its sovereignty, or its vital interests,” Saudi Crown Prince Mohammed bin Salman has said.
“The Iranian regime did not respect the Japanese Prime Minister’s visit to Tehran and while he was there replied to his efforts by attacking two tankers, one of which was Japanese,” he added.
Meanwhile, a boom in domestic fracking has made the US less beholden to energy coming from the Middle East.
US secretary of state Mike Pompeo yesterday said America does not want war with Iran.
“We will continue to take actions that deter Iran from this kind of behaviour,” he said.
However the US Navy’s Fifth Fleet is positioned in the Gulf of Oman, just outside the strait. US President Donald Trump said the strait would “not be closed for long” if Iran takes action.
What was the UK reaction?
Yesterday, foreign secretary Jeremy Hunt said that the UK’s intelligence agencies have concluded that Iran is almost certainly responsible for the attacks.
“We are urging all sides to de-escalate,” he told the BBC.
Hunt’s reaction came after energy ministers from the Group of 20 nations on Saturday agreed to collaborate to keep global oil markets stable. The attack has also caused worried insurers to hike their prices by more than 10 per cent.
The nuclear deal
Nuclear weapons are at the root of escalating tensions between the US and Iran. US President Donald Trump re-imposed sanctions on Iran last year, ripping up a deal signed in 2015.
His decision has put financial pressure on the leadership in Tehran.
The deal, signed by former President Barack Obama, aimed to prevent Iran from adding nuclear weapons to its arsenal in return for sanctions relief.