Most experts agree on one key point: The longer this conflict goes on, the more devastating its impact will be on the world’s energy supplies, inflation and economic stability. Every extra week of disruption raises costs for consumers and businesses while growth slows.
The Federal Reserve Bank of Dallas, part of the US central bank system, predicted earlier this month that a three-month or longer closure of the strait would cause global GDP growth to slow by an annualized 2.9% in the second quarter of the year.
At the link there is a chart regarding short, medium, long term closure of strait will have upon GDP. Of course the longer the strait closed the longer the negative impact upon GDP.
Sadam Hussains Kuwait attack should provide a guide. Surviving equipment should be back within 6 mo but damaged equipment might take years as much equipment is custom made.
Covid recovery is maybe a practical guide for full recovery.
Those are reasonable ways to consider it. Another is that Iran decides to open Hormuz selectively, and charge high tolls for the privilege. In that case the price of oil just went up (to some degree) on 20% of world supply, and some parts of it don’t reach market at all. It will be interesting to see what happens and weather we can extricate ourselves from the briar patch without continuing damage.
A good indicator is the stock market where people and business put their money where their mouths are. For the second day in a row the (pre)market (7:50 EDT) is going up.
Which would induce changes to avoid the toll, such as increased production elsewhere and more pipelines to avoid Hormuz. That Saudi pipeline to the Red Sea is already pumping 7 million barrels a day (up from one million pre-war). Here’s another proposed pipeline…
Could be a good idea - for the future. Even were all of the diplomatic agreements and environmental & route surveys to go through smoothly, how long would it realistically take to complete? Five, six years? Until then, we’ll just have to live with a continued threat since Britain and France will not come to our aid!
Everything is in the future of course. I suspect Iran wouldn’t be able the charge “high tolls” (or at least as high as they think they could). That additional 6 mbd already going via the Red Sea pipeline represents 30% of the Hormuz oil traffic. LNG is more difficult to change.
Yeah. All those investors dumping money into kitty-litter-by-email and overbuilding fiber in the late 90’s were really a good indicator. Also everybody putting money into, and banks financing mortgages for strippers in the early 2000’s: also a really good indicator.
The fact is that the market has become disconnected from fundamentals at many times and places, this “two day trend” is what is called a “relief rally”, which has no putative value on whether this will impact the economy six months down the line.
If we cut and run, yes. Who is going to stop them? France? England? It won’t be us, apparently. That said, the Strait also fuels the Iranian economy, even with sanctions, so they will have to let some traffic through. I suspect they will look kindly toward Spain, which has disallowed the US from using bases there or overflying. They will not look so kindly at others. (To the point that “we have all we need”, actually not true, since our refineries are not capable of processing the oil we produce, and we import a significant fraction of our consumption while we export a like amount of the stuff we cannot use - making it appear to the unwashed that “we are self sufficient”. We are not.)
Sure. Over the long haul. The Saudi pipeline that is transporting 7mpd was designed for 5, and was typically doing 3, so it is unclear how long it can sustain the doubling of throughput. Maybe it can. I wouldn’t know, but it seems if it can then it wouldn’t be described as a ”5” top end flow. In any event those alternate solutions will require time and money, which is why they don’t exist already.
Different numbers from the Pipeline Technology Journal:
Data indicate that crude exports via Yanbu have surged to roughly 5 million barrels per day, a sharp increase from pre-conflict levels. This is supplemented by an additional 700,000 to 900,000 barrels per day of refined petroleum products.
Of the total 7 million barrels currently moving through the 745-mile “Petroline,” approximately 2 million barrels are being siphoned off to feed domestic Saudi refineries on the country’s western coast.
The full activation of the pipeline marks a historic shift in global energy logistics. Historically, the Strait of Hormuz handled about 15 million barrels of crude daily.
In addition, the UAE pipeline to Fujairah has a capacity of about 1.5 million bpd. Iraqi oil can also exit through Turkey and has a capacity of 1.6 million bpd.
They have repurposed some natural gas pipelines to carry crude, so less natural gas, more crude. The original max throughput was to be 5, it carried less for (whatever) operational reasons, now carrying 7 with the use of two additional pipelines.
Pre-Crisis Levels : Before the current disruption, the pipeline typically carried about **2.8 million bpd**
Capacity Expansion : The system’s capacity was increased from a normal operating level of 5 million bpd to its current 7 million bpd limit by converting accompanying natural gas liquids (NGL) pipelines to carry crude oil.
Even so, the pipeline barely replaced 1/2 to 1/3 of the usual Saudi exports. A relief valve, yes. A replacement? No.
Heard a report on NPR this afternoon, comments that the world is already rationing oil in Asia, never mind higher prices. The comments were that no one but Russia was benefiting.
The commentator left off West Texas and other American producers who are eating this up. It is as if Trump wants to keep the Strait closed. Just because he seems undisciplined does not mean he is. He is sly and cagey.
How many solar cells can China produce without oil for all parts of its economy?
The Israelis would not have seen this one coming. Saudi Arabia will be spitting bullets and selling the LIV Golf League.
You think he won’t unnecessarily default on the debt for a tax cut?
