Oil prices may enter dire straits

Press, 27 February 1984, Page 10

Oil prices may enter dire straits

ROBERT BURNS

By

of the Associated Press New York If the latest flare-up of the Iran-Iraq war closes the Strait of Hormuz, the route used by oil tankers to enter the Persian Gulf, oil prices could double within days, analysts have said. But they said an immediate severe shortage of oil would be unlikely. Iran has threatened to close the Strait of Hormuz, the access route for tankers entering the Persian Gulf, if Iraq steps up its war against the Teheran Government. The United States President, Mr Ronald Reagan, has said the United States would not permit the strait to be closed.

Approximately eight million barrels of oil pass

daily through the 55km95km wide, 42km long strait, representing about 20 per cent of the nonCommunist world’s daily supply. The strait links the Persian Gulf with the Gulf of Oman and the Arabian Sea. Dependence on that shipping lane varies greatly from country to country. For example, Japan gets about two-thirds of its oil from that area, compared with about five per cent for the United States. Western Europe gets about 40 per cent of its imports through the strait, according to C.I.A. figures. Oil moves through the strait from Saudi Arabia, the United Arab Emifates, Qatar, Kuwait, Bahrain and

Iran. Before its war with Iran began in September, 1980, Iraq also shipped oil from the gulf. Now it relies exclusively on a 650,000-barrel-a-day pipeline to the Mediterranean Sea by way of Turkey. Saudi Arabia also has a pipeline that would not be affected by a closing of the strait. The line pumps about 600,000 barrels a day to the Red Sea port city of Yanbu. The analysts said they believe its capacity could be increased by one million barrels in an emergency. Mr Paul McDonald, an oil analyst at the investment firm Shearson-American Express, Ltd, in London, said the oil-importing nations would face no serious shortage of oil if the Strait of Hormuz were

closed briefly. He added that he saw little chance of the strait being shut for a long period. Mr Bill Brown, an analyst at the investment firm of Kidder Peabody and Company, in New York, estimated that the oil shortfall could be as little as 1.5 million barrels a day. Mr McDonald said oilproducing nations outside the Persian Gulf could increase their production to make up three million to four million of the eight million barrels lost if the strait was closed. Much of the rest could be offset with oil that has been stockpiled for emergencies by Japan, the United States and other countries. The International Energy Agencs*estimates there are

about 600 million barrels of oil in transit on the high seas at any given time. That does not include floating storage of about 150 million barrels. Together, that represents a two-week supply at current daily consumption rates in non-Communist nations.

The problem could become much more serious, however, if a blockage of the strait lasted more than a few weeks. Even if a temporary supply emergency was handled adequately, a closing of the strait almost certainly would spark an immediate and substantial jump in oil spot prices. The analysts estimated that prices could rise sharply — perhaps doubling to about SUS6O a barrel. ■

The price a barrel on Friday of benchmark Saudi Arabian light crude was $U528.45. An executive at a Japanese trading firm in New York said “the market does not believe” the Strait of Hormuz will be closed, despite Iran’s frequent threats. The executive agreed to be interviewed on condition that he not be identified. For the moment, the strait is largely unaffected by the fighting, and oil tanker traffic was reported moving normally last week. The fighting is centred on the Iran-Iraq border north of Basra, an Iraqi port city at the head of the Persian Gulf.