Monday, August 25, 2014

Oil Matters: Iran Is Thinking of Oil Terminal Outside the Arabian/Persian Gulf

Most of Iran's ability to get oil and gas products to the world outside the Arabian/Persian Gulf can be blockaded by putting a "stopper" in the entrances to the sea line of communication chokepoint that is the Strait of Hormuz. That "stopper" could be naval forces or mines or air power sufficient to threaten shipping trying to leave the A/P Gulf.

To an extent, the great worry to many of those outside of Iran who rely on shipments of oil and gas from the area has been that Iran might place its own cork in the mouth of the Gulf and cut off vital supplies, creating an international energy shortage and chaos in energy markets.
Other oil and gas producing states in the A/P Gulf have taken steps to reduce the risk of economic harm caused by Iranian action by developing alternative paths (by which I mean pipelines) to carry products away from the Gulf and the Strait of Hormuz. See the nearby map of such alternatives. Click on it to enlarge it.

Iran's potential to close the Strait of Hormuz is a double-edged sword, however, because a truly effective Iranian cork (perhaps using mines) in the Strait of Hormuz might also hobble the Iranian oil and gas export business which is also dependent on an open Strait. This limitation affects the ability of Iran to apply "energy supply" leverage on the world to get what it wants.

This Iranian dependency on an open Strait also constitutes a powerful strategic lever against the Iranian government when international disputes arise. Due to the alternative export routes developed by its neighbors and that are currently unavailable to Iran, it is possible that through - a blockade or other action closing the Strait to it - Iran could be boxed in the Gulf with oil and gas but no way to get it to market. No sales of such products could wreak havoc on the economy of Iran. A Iranian economy that gets bad enough could lead to internal strife in Iran and an overthrow of the present "republic."

Recognizing this problem, Iran is pondering a way to build itself a way out of this "box." One possibility is to set up an oil and gas port outside of the chokepoint Strait of Hormuz. The Tehran Times reports on just such a plan, in "Iran to invest $2.5b to build oil terminal at Sea of Oman port" :
Iran is planning to invest $2.5 billion to build a new crude oil export terminal at Jask Port on the Sea of Oman, bypassing the strategic Strait of Hormuz, the only way in and out of the Persian Gulf, the managing director of the Iran Oil Terminals Company announced on Saturday.

Most of Iran’s exports are funneled through the big terminal on Kharg Island in the northern Persian Gulf, then shipped southward in supertankers through the Strait of Hormuz, the Mehr News Agency quoted IOTC Managing Director Pirouz Mousavi as saying.

Iran also plans to lay a pipeline running from the Caspian Sea in the north to Jask, Mousavi added.

An older look at Iran's oil and gas infrastructure (2004)
Since a large number of joint oil and gas fields are located in the Persian Gulf, such a terminal will help the country expedite oil storage and export operations, he stated.

The Jask oil terminal will be comprised of storage facilities with a total capacity of 20 million barrels, loading and unloading docks, as well as onshore and offshore facilities, Mousavi said.

Iranian President Hassan Rouhani said in a meeting with domestic researchers in Tehran on Saturday that the diversification of oil export routes is one of the most strategic policies of his administration.

Mohsen Qamsari, the deputy director for international affairs of the National Iranian Oil Company, recently said that Iran is exporting an average of one million barrels of oil per day based on the November 2013 interim nuclear deal with the 5+1 group (the United States, Britain, France, Russia, China, and Germany).

Under the deal, the six countries undertook to provide Iran with some sanctions relief in exchange for Iran agreeing to limit certain aspects of its nuclear activities.

The two sides agreed to extend the nuclear talks until November 24, with a view to achieving a permanent accord.

Iran produced 2.762 million barrels of oil per day in July, the Organization of Petroleum Exporting Countries (OPEC) said in its latest report. (emphasis added)
Bandar-e-Jask Area
So, Iran is sitting on a million+ barrels of oil that it can't legally export under its agreement in the interim nuclear deal.

It needs an alternative path for its oil and gas. It has a small port at Jask on the Gulf of Oman - so . . . it has now floated a plan to enlarge that port and get an alternative out of the Gulf.

The arrow on the nearby map points to Jask.

Jask is also home, since 2008, to an Iranian naval base which it has asserted gives it the ability control the Strait of Hormuz:
"We are creating a new defence front in the region, thinking of a non-regional enemy," Adm Sayyari told state run Iranian radio.

"In this region we are capable of preventing the entry of any kind of enemy into the strategic Persian Gulf if need be," he said.
Is this proposed oil port real? If so, is it a sound and smart strategic plan or a bargaining chip for the nuclear talks? Or both?

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