2024-04-22 01:28:28
In the Israeli-Iranian conflict, the price of crude oil on the world market reaches almost 90 dollars. Oil prices began to rise following Israel’s retaliation. In the next step, if Iran blocks the Strait of Hormuz, the price of petroleum products, including liquefied natural gas (LNG), will increase further. Many countries, including India, import oil from Saudi Arabia, Iraq and other Gulf countries through the Strait of Hormuz. If such a situation occurs, it will cause prices to rise drastically.
Strait of Hormuz
The Strait of Hormuz is a very narrow strait between Oman and Iran. It is only 40 km wide at its narrowest parts. There are two two kilometer wide canals through which ships can pass. Saudi Arabia exports 6.3 million barrels of crude oil per day. The United Arab Emirates, Kuwait, Qatar and Iraq also trade millions of crude oil there.
21 million barrels of crude oil pass through it every day. It is estimated that by 2022, 21% of the world’s traded crude oil will pass through the strait.
The situation has worsened in recent days between Iran and Israel. On April 13, Iran attacked Israel with drones and missiles. After that, last day, Israel launched a counterattack targeting the Iranian airbase. Iran’s first attack was a response to Israel’s attack on its embassy in Syria.
Are there any alternatives?
Although there are other transportation routes for crude oil, LNG transportation will be significantly affected since it entirely uses this route. Ships carrying oil can also cross the Red Sea. As India is heavily dependent on crude oil and LNG from Saudi Arabia, Iraq and the UAE, if the Strait of Hormuz is blocked, it will affect India very badly.
Even if there are other routes, only 7-8 million barrels of crude oil can be transported through these routes every day. Compared to the 21 million barrels of oil that now pass through Hormuz every day, this is a pittance.
Saudi Arabia and the United Arab Emirates have other options. One of them is the East-West pipeline. 7 million barrels of oil per day will pass through there. Through this route, Saudi Arabia can reach the Red Sea. Previously, the movement of goods in the Red Sea was disrupted due to the Houthi attack. The UAE can export 1.5 million barrels of crude oil per day through the Fujairah export terminal. 30 to 40 percent of this sum is already used by the United Arab Emirates. The current situation poses a significant challenge for India, but it is reassuring to know that Russia supplies 30% of the crude oil consumed by India.
Once the price of oil rises, the biggest problem will be rising prices. Considering the cost of production and transportation to different locations, the prices of basic commodities, including food items, are likely to increase significantly.
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