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The vital role of the Strait of Hormuz in Global Energy Supply

Updated: Nov 30, 2023

The Strait of Hormuz, situated between Oman and Iran, serves as a crucial sea passage connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. Here we highlight key points about the importance of the Strait of Hormuz in the world of energy, with information from EIA.

Oil flow through the Strait of Hormuz:

In 2022, an average of 21 million barrels of oil per day (b/d) passed through the strait, accounting for approximately 21% of the world's petroleum liquids consumption.

Despite fluctuations, the first half of 2023 witnessed consistent oil flows, thanks to increased oil product shipments that offset declines in crude oil and condensate.

The importance of the Strait:

Between 2020 and 2022, the volume of crude oil, condensate, and petroleum products transiting the Strait of Hormuz increased by 2.4 million b/d as oil demand recovered post-COVID-19.

In 2022 and the first half of 2023, these flows constituted over one-quarter of total global seaborne traded oil.

Pipeline alternatives:

Saudi Arabia and the United Arab Emirates (UAE) have pipelines capable of bypassing the strait.

Saudi Aramco operates a 5-million-b/d East-West crude oil pipeline, temporarily expanded to 7 million b/d in 2019.

The UAE has a 1.5 million b/d pipeline linking its onshore oil fields to the Fujairah export terminal on the Gulf of Oman.

Iran inaugurated the Goreh-Jask pipeline in 2021, with potential unused capacity of 3.5 million b/d in case of supply disruptions.

Top movers through the Strait:

Saudi Arabia is the largest mover of crude oil and condensate through the Strait of Hormuz, with much of it being exported to other countries.

In 2022, about 0.5 million b/d transited from Saudi ports in the Persian Gulf to Saudi ports in the Red Sea.

US imports:

In 2022, the United States imported around 0.7 million b/d of crude oil and condensate from Persian Gulf countries through the Strait of Hormuz.

This represented about 11% of U.S. crude oil and condensate imports and 3% of U.S. petroleum liquids consumption.

US Imports from the Persian Gulf have decreased since 2018 due to increased domestic production.

The Strait of Hormuz
The Strait of Hormuz

Here's an explanation of how the Strait of Hormuz evolved into a critical chokepoint for global oil transportation:

Geographical significance:

Location: The Strait of Hormuz is strategically located between the Persian Gulf and the Gulf of Oman, connecting the oil-rich Persian Gulf region to the open waters of the Arabian Sea and the Indian Ocean.

Narrow Passage: Hormuz is a narrow waterway, approximately 21 miles wide at its narrowest point. Its geographical bottleneck makes it a natural chokepoint for ships traveling between the Persian Gulf and the Indian Ocean.

Abundance of oil resources:

Persian Gulf Reserves: The Persian Gulf region, which includes countries like Saudi Arabia, Iran, Iraq, Kuwait, and the United Arab Emirates, holds some of the world's largest proven oil reserves. This region is a major global supplier of crude oil.

Oil Production: These countries have developed extensive oil production infrastructure and rely heavily on exporting their oil to global markets. As a result, they need efficient access to international shipping routes.

Historical developments:

Post-WWII Oil Boom: After World War II, there was a surge in global demand for oil. The Persian Gulf region, with its vast reserves, became a focal point for oil exploration and production.

Infrastructure Investment: Significant investments were made in building pipelines, refineries, and port facilities in the region to extract and export oil efficiently.

Maritime trade routes:

Vital Shipping Routes: Hormuz lies along crucial maritime trade routes that connect the oil-producing countries of the Persian Gulf to major markets in Asia, Europe, and North America.

Global Energy Supply Chain: It's a key link in the global energy supply chain, allowing oil tankers to transport crude oil and petroleum products to consumers around the world.

Geopolitical importance:

The geopolitical importance of the Middle East and the Persian Gulf, coupled with global reliance on oil, has further elevated the significance of Hormuz.

Rising oil demand:

Growing Global Demand: Over the decades, global demand for oil has steadily increased, particularly with the industrialization and economic growth of countries like China and India.

Asia's Role: The Asian markets, including China and India, have become major consumers of Persian Gulf oil, further emphasizing the importance of Hormuz as a route for oil shipments to these regions.

The Strait of Hormuz's rise to prominence as an essential oil destination is rooted in its geographical location, the abundant oil resources in the Persian Gulf, historical developments in the oil industry, and the critical role it plays in global maritime trade routes. Its continued importance underscores the need for stability and security in the region to ensure the reliable flow of oil to global markets.

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