Oil's troubled waters: The Middle East examines some of the trouble spots threatening the global oil supply.

Author:Blanche, Ed
Position:BUSINESS & FINANCE
 
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IRAN'S INCREASINGLY STRIDENT threats to close the Strait of Hormuz, the only gateway to the Gulf through which one fifth of the world's oil flows, if it is attacked by the United States or Israel, is causing growing concern around the globe.

"Iranian closure of the Strait of Hormuz tops the list of global-energy security nightmares," according to Toni Johnson of the Council on Foreign Relations, a New York think-tank. "Extended closure of the strait would remove roughly a quarter of the world's oil from the market, causing a supply shock of the type not seen since the glory days of OPEC."

The feuding between rival factions in Iraq over who controls the battered country's vast oil wealth and the escalation of tribal violence in Nigeria's oil-rich Niger Delta, which has already forced big production cutbacks, are also worrying, There is little prospect of a settlement in sight in either country.

Russia's August invasion of Georgia--home to a large section of the 1,700km Baku-Tbilisi-Ceyhan oil pipeline from Azerbaijan to Turkey's Mediterranean coast--and the sabotage of a rail route used to transport Caspian oil, plus a two-week disruption of a second pipeline following an August attack in Turkey, apparently by Kurdish separatists, underlined once again just how vulnerable the world's oil arteries are. Increased piracy in the Gulf of Aden--and the possibility Al Qaeda will become involved--threatens tanker traffic using that vital shipping route.

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There was also a grim reminder of how Mother Nature can be a threat to the global energy supply as well. In September, Hurricane Ike ravaged offshore oil production in the Gulf of Mexico, which supplies 30% of the United States' fuel requirements. The Gulf, with an output of 1.5m barrels a day, was badly hit by storms in 2004 and Hurricanes Katrina and Rita in 2005, causing US supply disruption in the region unequalled in living memory.

With global supplies of oil already tight, potential supply disruptions--not to mention natural disasters--could push oil prices, in recent weeks drifting downward from an all-time high of $150 a barrel, back up again, possibly to higher levels. On top of the global financial crisis triggered by September's Wall Street meltdown, serious shrinkage in the oil supply and sky- high prices signal a potentially dangerous disruption in the global economy.

Instability in major oil-producing countries, an uncertain investment environment, the threat of terrorism, a decrease in spare refining capacity, and high demand growth are straining the global oil-supply system, causing high and volatile prices, and creating very real economic and national security vulnerabilities for the United States. Growing competition between the US, Russia, China and Europe for shrinking oil reserves heightens the global uncertainty about supply.

Figures released by Moscow's Energy Ministry on 2 October show that Russian oil production declined in September for the ninth consecutive month--by 0.4% to 9.83m barrels per day (b/d). This decline is expected to continue for the rest of the year, marking the first time since 1998 that Russia, the world's second-largest exporter after Saudi Arabia, has experienced an annual production fall.

This has immense significance since Russia's energy sector is what underpins Moscow's geopolitical power, but, until...

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