Why Iran's Project To Move Oil Exports To Bandar-E-Jask Is Just A Dream

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by: Faisal Mrza
Summary

Iran's equivocal threat against regional oil exports to close Hormuz Strait pressure oil prices. Moving oil exports out of Arabian Gulf is part of this threat that escalates oil price above $100/bbl in 2012.

90% of Iranian oil for export is loaded at Kharg Island, so closing the Strait of Hormuz is a losing card for a nation whose economy is in free fall.

Most of Iran's onshore oilfields are near Iraq and the offshore oilfields are across its sea border from Saudi Arabia and Kuwait, all connected by pipelines to Kharg Island.

The Chinese are hesitant to invest in the Iranian oil infrastructure after the pullout of the European energy majors.

Moving Iran's oil export facilities from deep inside the Arabian Gulf need massive upstream investment, which Iran can't fund.

Iran onshore and offshore fields

Iranian President Hassan Rouhani spoke last week of plans to relocate Iran's main oil export terminal from Kharg Island, deep in the Arabian Gulf, to Bandar-e-Jask in the Oman Sea. He claimed the move would be completed by 2021, the end of his term in office.

The Iranian president's comments are nothing new. Back in February, the CEO of Iran's Petroleum Engineering and Development Company discussed the project. He claimed that once the Jask port was fully developed in 2021, it would have the capacity to store up to 30 million barrels and export one million barrels per day (bpd) of crude oil.

Of course, the project depends on Iran being able to finance billions in construction costs. Iran is desperate to move at least some of its oil exports from the Kharg oil terminal. This facility is accessible only through the Strait of Hormuz - a waterway that Iran has repeatedly threatened to close if the US reimposes economic sanctions. Back in July, Rouhani claimed that Iran would continue to guarantee the security of the strait but warned that the US "should not play with the lion's tail."

Currently, 90 percent of Iranian oil for export is loaded at Kharg Island, so closing the Strait of Hormuz is a losing card for a nation whose economy is in free fall. Recently, the Iranian rial hit a record low against the US dollar.

The Strait of Hormuz is a strategic waterway between the Indian Ocean and the Arabian Gulf. It is one of the most important maritime chokepoints. About 35 percent of the world's seaborne oil exports and about a third of global liquefied natural gas supplies pass through the waterway, along with other refined products and petrochemicals. Iran's own economy depends on the free passage of goods as well as oil tankers through the strait.

In 2012, Iran threatened to suspend oil movements via the strait in response to the imposition of US sanctions. It warned that not a "drop of oil" would pass through the waterway. Yet its threats never materialized, despite repeated warnings of impending closure over the years. Iran beats its nationalistic drum to stoke fear via the media with the result that oil prices rise sharply. Its threats led to prices of more than $100 per barrel in 2012, and freight and insurance costs for oil tankers also increased. Nevertheless, the closure of the Strait of Hormuz would cause maximum damage to global oil-consuming countries rather than the Middle East's oil-producing nations. Such a collapse in the world's economy would not be tolerated.

While Iran wants to move its exports from deep inside the Arabian Gulf, this is just a dream. Currently, it is loading crude oil through terminals on the islands of Kharg, Lavan, and Sirri. In the aftermath of the Iran-Iraq War, it paid millions to repair, improve, and expand these facilities but that was never enough as massive upstream investment is needed. It has no funds now to finance further infrastructure investment. Most of Iran's onshore oilfields are near Iraq, with pipelines connecting them to Kharg Island. Iran's offshore oilfields are across its sea border from Saudi Arabia and Kuwait, also connected by pipelines to Kharg Island. In this area, there's also large refinery and military bases.

To move this infrastructure, Iran would need massive upstream investment. Before the reimposition of US sanctions, all international companies have walked away from the Iranian oil industry. The nation is watching plummeting exports of what crude oil is available. Major Japanese refineries announced that they were suspending all Iranian crude oil imports for October. Even the Chinese are hesitant to invest in Iranian fields after the pullout of the European energy majors.

With the imposition of US sanctions in November, it is likely that Iran's oil exports will drop to 800,000 bpd or less. Some of that oil will be sold under barter agreements. There will be limited cash available to Iran. With the US government claiming it will help Iran's buyers to find alternative sources, there will be little fluctuation in oil prices. Iran will need to use every rial to finance goods and services for a restive population.

Previously published by Arab News.

References:

Tanker Operator Iran to move oil export terminal out of Gulf

Iran To Move Main Oil Export Terminal From Gulf

Iran moving main oil export terminal out of Gulf

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