Strait of Hormuz the World’s Leading Oil Transit Chokepoint

(August 5, 2019) — The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The strait is the world’s most vulnerable oil chokepoint because of the large volumes of crude that flow through it, writes the Energy Information Administration (EIA). In 2018, the strait’s daily oil flow averaged 21 MMbbld, or the equivalent of about 21% of global petroleum liquids consumption.

Chokepoints are narrow channels along widely used global sea routes that are critical to world energy security. The inability of oil to transit a major chokepoint, even temporarily, can lead to substantial supply delays and higher shipping costs, resulting in elevated energy prices. Although most chokepoints can be circumvented by using other routes that add significantly to transit time, some have no practical alternatives.

Volumes of crude oil, condensate, and petroleum products transiting the Strait of Hormuz have been fairly stable since 2016, when international sanctions on Iran were lifted and the country’s oil production and exports returned to pre-sanctions levels. Flows through the strait in 2018 made up about one-third of total global seaborne traded oil. More than one-quarter of global liquefied natural gas trade also transited the Strait of Hormuz in 2018.

There are limited options to bypass the strait. Only Saudi Arabia and the United Arab Emirates have pipelines that can ship crude oil outside the Persian Gulf, as well as possessing surplus pipeline capacity to circumvent the Strait of Hormuz. At the end of 2018, the total available crude oil pipeline capacity from the two countries combined was estimated at 6.5 MMbbld. That year, 2.7 MMbbld of crude moved through the pipelines, leaving about 3.8 MMbbld of unused capacity that could have bypassed the strait.

Based on tanker tracking data published by ClipperData, Saudi Arabia moves the most crude oil and condensate through the Strait of Hormuz, most of which is exported to other countries. Less than 500,000 bbld transited the strait in 2018 from Saudi ports in the Persian Gulf to Saudi ports in the Red Sea.

EIA estimates that 76% of the crude oil and condensate that moved through the Strait of Hormuz went to Asian markets last year. China, India, Japan, South Korea, and Singapore were the largest destinations for crude moving through the strait to Asia, accounting for 65% of all Hormuz crude oil and condensate flows last year.

In 2018, the U.S. imported about 1.4 MMbbld of crude oil and condensate from Persian Gulf Countries through the Strait of Hormuz, accounting for about 18% of total U.S. crude and condensate imports and 7% of total U.S. petroleum liquids consumption.

(SOURCE: The Weekly Propane Newsletter, July 29, 2019)