Crossroads of the world crude oil market, the Persian Gulf has a central role in the international energy market. China, India and Japan are the new drivers of demand while USA dependency diminishes, with important results for regional equilibrium.

According to the estimates of the US Energy Information Administration (EIA), in 2019 27% of global oil offers was guaranteed by five Meddle Eastern countries Saudi Arabia, Iraq, the United Arab Emirates, Iran and Kuwait), three of which belong to the Cooperation Council for the Arab States of the Gulf – CCG (which unites the monarchies of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates).

The Gulf region sees as highly strategic the presence of the Strait of Hormuz, situated between Oman and Iran, which represents the more important of the eight world maritime chokepoints (the others are the Malacca Straits, the Suez Canal, Bab el Mandab, the Danish Straits,
the Bosphorus and the Dardanelles, Panama Canal and the Cape
of Good Hope).

In 2018, the EIA calculated a transit of 21 million barrels a day for Hormuz, equal to 21% of the total consumption of crude oil and 35% of all oil transported by sea. For the same year, BP analysed the daily production of the main producers in the area, which was around 12.3 million barrels by Saudi Arabia, 4.7 by Iran, 4.6 by Iraq, 3.9 by the Emirates, 3 by Kuwaiti and 1.9 by Qatar.

As regards demand, in 2018 76% of oil leaving the Strait of Hormuz was exported to Asian markets, 65% of which went to China (around 3 million barrels per day), India, Japan, South Korea and Singapore. The USA, at present the largest producer of oil, followed by Saudi Arabia and Russia, in 2018 continued to import around 1.4 million barrels a day.

The role of the USA in the world energy market, and consequently the entire geopolitical scenario of the sector, has profoundly changed due to the progressive development of shale technology since the start of the millennium, which has enabled US companies to extract hydrocarbons from bituminous rocks present in a number of States.

The innovative shale technology has had an enormous effect, transforming the USA from a driver of oil demand to a producer, in direct competition with the OPEC Cartel.
The shift of the volume of demand towards the emerging Asian powers has made the dynamics of the market particularly sensitive to the course of their economies, especially that of China.

Due to the high strategic value of the chokepoints, even their temporary blockage would have international economic repercussions causing delivery delays, higher transport costs and higher prices for petroleum products.
In the case of Hormuz, only Saudi Arabia and the United Arab Emirates have sufficient capacity and oil pipelines to bypass the Strait.

The threat of eventual closure is a recurrent theme in the rhetoric of the leadership of the Islamic Republic, especially in the more acute phases of conflict with the USA, despite it being difficult to carry out due to the enormous harm it would inflict on the Iranian economy. It is clear, however, that even minor actions or accidents would notably affect the interests of various players in the sector.

The petroleum business is going through a complex phase: the contraction of demand due to the Covid-19 crisis and the contrasts between Saudi Arabia and Russia (included in the new enlarged OPEC+) have led to the unprecedented collapse of petroleum prices, even reaching record negative levels. S&P Global Ratings forecasts that due to a combination of these factors, the CCG economies may incur a loss of 490 billion dollars by 2023, a radical challenge for regimes whose social pacts are based upon income from oil.

The reduction in profits from fossil fuels, destined in the long run to give way to less-polluting sources of energy, together with a lower degree of dependence by the USA and the emergence of extra-OPEC producers, will impact the political and economic systems of the countries of the Gulf and their ability to play a role on the
international stage.

Violetta Orban/CgP