Iran works to reroute oil exports away from Strait of Hormuz

The oil terminal project would allow Iranian tankers to bypass the Strait of Hormuz and load their oil cargoes at the Jask port terminal, east of the strait.

Iran has embarked on a project to reroute a sizeable part of its crude oil exports away from the Strait of Hormuz choke point, potentially allowing Tehran to create more mischief for its Gulf neighbours that rely on the narrow waterway for their oil sales.

In moving forward with a costly project at a time when its economy is haemorrhaging because of US sanctions that specifically target its energy exports, Tehran is anticipating the day when it is freed from restrictions on its crude sales.

The government of Iranian President Hassan Rohani is committed to building by 2021 a $1.8 billion crude export terminal at Bandar-e-Jask on the Gulf of Oman that includes a cross-country pipeline. The rerouting would position Iran with regional adversaries Saudi Arabia and the United Arab Emirates as the only major Arabian Gulf producers to have alternative export options should traffic be disrupted in the Strait of Hormuz.

The oil terminal project would allow Iranian tankers to bypass the Strait of Hormuz and load their oil cargoes at the Jask port terminal, east of the strait. When the project was publicly broached in May 2012, Pirouz Mousavi, head of Iranian Oil Terminals Company, explained that “in the event of any type of problem in exporting crude oil from the Kharg terminal, this terminal can provide backup for exports.”

Mousavi said the terminal would be connected to Iran’s Caspian Sea port of Neka, enabling Tehran to boost shipments of oil from Caspian producers.

A 1,000km pipeline with a capacity of 1 million barrels per day (bpd) is slated to transport crude from an oil terminal at Goreh in Iran’s north-western Bushehr province on the Arabian Gulf to the Jask terminal in the south-eastern Hormozgan province on Iran’s Gulf of Oman coast.

Rohani announced in September 2018 that “a major part” of Iran’s oil exports would be shifted to Jask from Kharg Island, with the project to be completed by the summer of 2021. The Iranian Oil Ministry’s Shana website reported September 30 that Iran’s state oil firm, the National Iranian Oil Company, had signed a contract valued at around $52 million with three local companies to supply 50 pumps for the pipeline. Shana said Jask would be “strategically important as the country’s second-largest crude oil export terminal.”

The Jask terminal will have an export capacity of 1 million bpd with an initial 20 million barrels of crude storage capacity.

Vessels carry about one-fifth of the world’s oil needs through the Strait of Hormuz, which lies between Oman and Iran and links the Arabian Gulf with the Gulf of Oman. Iran’s primary export facility at Kharg Island traditionally accounts for 90% of the country’s crude exports, which are carried by tankers through the strait. Tehran’s crude exports, which saw pre-sanction highs of 2.5 million-2.7 million bpd, have fallen to as low as 300,000 bpd.

Iran has routinely threatened to close the strait as a punitive measure amid heightened geopolitical tensions, with attacks attributed to Tehran on oil tankers — including two Saudi ships — last summer just outside the strait. Should Iran recover its crude exports to its previous highest levels, the Jask route would accommodate approximately one-third of the country’s oil sales, with the majority transported through the waterway.

As relations with Tehran have frayed, both Saudi Arabia and the United Arab Emirates have moved decisively to secure alternative export routes to the strait. Riyadh is expanding its 1,200km East-West pipeline that connects its oil-producing region in the Eastern province to Yanbu export facilities on the Red Sea from a current capacity of 5 million bpd to 7 million bpd. The East-West pipeline is not immune to sabotage, though, having been the victim of Houthi drone attacks on two pump stations in May that temporarily halted oil flow through the line.

The United Arab Emirates opened a 370km overland crude pipeline in July 2012 carrying crude from Abu Dhabi fields to an export terminal at Fujairah on the Gulf of Oman, providing the Emirates direct access to the Indian Ocean, bypassing the strait. The pipeline can carry up to 1.5 million bpd of crude for export, accounting for approximately 65% of Abu Dhabi’s oil exports.

Kuwait is entirely dependent on its crude being exported via the Strait of Hormuz. State oil firm Kuwait Petroleum Corporation investigated export options in 2013 that would have entailed pumping oil through pipelines extending across Saudi Arabia and Iraq, options ultimately deemed too expensive because of the distances involved.

Iraq is reliant on the strait for about 90% of its crude exports, with volumes of around 3.77 million bpd loaded on tankers at its southern Basra port for passage through the maritime chokepoint. The Iraqi government is in negotiations with Jordan to build a 1 million bpd capacity pipeline to carry crude from Iraq’s Rumaila fields to Jordan’s Red Sea port of Aqaba for export.

Qatar, which holds 25% of the global liquefied natural gas (LNG) market share, is extremely vulnerable to disruptions in the Strait of Hormuz because it has no alternative bypass routes for its LNG tankers.

Jareer Elass is a Washington-based energy analyst, with 25 years of industry experience and a particular focus on the Arabian Gulf producers and OPEC.

This article was originally published in The Arab Weekly.