July 30th, 2010
05:18 PM GMT
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The noise and commotion from one Gulf is drowning out activities in the other Gulf - the latter being the Persian Gulf.

A new chief executive has been appointed at BP, which is becoming more American by association with Bob Dudley now at the helm.

While clean up in the Gulf of Mexico and long-term solutions to cap the well dominate the agenda, there has been a tanker incident in the Straits of Hormuz, which raised some concerned eyebrows temporarily.

Maybe the "green light," which has been giving tankers unfettered passage of late, should be raised to amber as a sign of cautionary times ahead.

The tanker, "M. Star," owned and operated by Mitsui O.S.K. Lines of Japan had set sail off Das Island, Abu Dhabi and was headed to Japan with 270,000 tons of oil.

There was an explosion on board, the cause of which there are at least two explanations for. A crew member described seeing a flash before the explosion, leading a spokesperson for the company to say it could have been an attack.

A captain at the Port of Fujairah in the UAE said the tanker was exposed to a high wave attack as a result of an earthquake in Southern Iran over the previous weekend. After further inspection, port officials edged away from that cause.

The U.S. 5th Fleet is investigating the incident, and I am sure U.S. Central Command in Qatar will also be on higher alert, even if this was a false alarm.

I spent some time during the first Gulf War covering this main artery of energy transport. From up in the air, there are times when the Straits appear like a crowded highway for tankers.

Fifteen tankers a day, on average, pass through the Straits, handling about 17 million barrels - or 20 percent of the world’s daily crude demand. Japan is particularly dependent on the artery, with 75 percent of its supplies coming from the Gulf.

Since more than 40 percent of the proven reserves sit in countries that border the Persian Gulf: Saudi Arabia, Iran, Iraq, the UAE and Oman, the International Energy Agency believes the oil passing through the Straits will double by 2020.

This plays right into the hands of the current leader in Iran, Mahmoud Ahmadinejad, who has threatened to wreak havoc if economic sanctions hold back his ability to develop the energy sector.

The country’s Revolutionary Guard conducted naval exercises at the end of April to underscore the point. Iran sits atop the third largest proven oil and gas reserves and the majority of a huge natural gas field, which is shared with Qatar. It is fair to note that Qatar cannot produce energy at its state of the art LNG facility fast enough, while Iran suffers from a lack of investment and technical expertise on its side of the field.

All this discussion triggers memories of the so-called “tanker attacks” in the mid-1980s when Iran and Iraq planted sea mines to not only attack each other during their eight-year war, but to keep the energy passage on tenterhooks. Similar security challenges persisted during the Gulf War, creating wild gyrations in energy markets.

Not to be alarmist, but those I have recently spoken with in the business are not taking anything for granted. They remain concerned about the rhetoric coming out of Iran and the fact it was raised to a new level after the vote for European Union sanctions, which includes actions to target Iran’s energy sector.

At this stage, the incident of the M. Star may be an act of Mother Nature and the tanker can move on its merry way after minor repairs. That would be a simple ending to this story. But the Straits of Hormuz and the Persian Gulf are too complex for that.

Bring in Turkey’s Prime Minister Recep Tayyip Erdogan to add an interesting plot twist. While hosting his British counterpart David Cameron in Ankara, Erdogan kept to the line that he prefers a diplomatic solution to Iran’s nuclear plans.

Turkey cast a vote against U.N. sanctions and is not of course a supporter of stricter measures from Brussels. Let’s not forget two crucial elements that may influence his decision: the exhaustive debate over Turkey’s application to the E.U. and the country’s larger than life role in oil and natural gas distribution for Europe.

I invite you to call up a few of the maps that include oil and gas pipelines. Those arteries of energy seem to outnumber the major truck routes in the country.

Turkey’s emboldened stance comes after a few years of active diplomacy by the leader whose country straddles East and West. He has decided to take his chips to the East, where the role of one of the region’s most populated countries is more appreciated.

Against this backdrop there remain tensions in Gaza, re-emerging frictions in Lebanon and yes, Iran’s nuclear ambitions.



soundoff (5 Responses)
  1. Eftekhar Ali

    "wreak havoc if economic sanctions hold back his ability to develop the energy sector"
    Please would you enlighten us on your source of information, supporting that statement?

    July 31, 2010 at 9:05 am |
  2. Oladipo Akinyemi Omole

    Dear John,
    Turkey wants to belong to the EU and wants diplomatic solutions to Iran's obstinacy and recalcitrant behavior. It has not defined the nature of this diplomatic solution other than its need to belong to EU.You mentioned the arteries of the distribution of oil and gas in the region which seem more efficient than any effort from Turkey.Its role in the distribution of oil and gas in the region is larger than life. If I read you correctly, its role in the distribution network of oil and gas in the region is negligible.
    The US 5th Fleet would do a lot of good , if it can secure the network of oil and gas pipelines and the Straits of Hormuz and the Persian Gulf ultimately.
    While the large oil and gas reserves in Iran are ripe for exploration, Iran needs to play by the rules of the game. Iran should seek alternatives to power its industrial and medical facilities by cooperating with countries that have shown interest in providing it with alternatives to nuclear reactors which has been opposed at the Security Council.
    Iran stands to lose a lot from its recalcitrant stance as long as the huge reserves of oil and gas remain reserves and unexploited.It needs technical expertise and huge capital from the West-Europe and the United States.It can only get this by cooperation.It's really very simple.Iran should stay off the Israel-Palestinian feud,because it lacks any workable and pragmatic solutions to end the feud other than recommending the extermination of Israel.This makes its quest for acquiring nuclear technology suspect.It's sinister and must not be encouraged by any means.
    P.S That's a very lucid one you wrote on the Persian Gulf and I enjoyed it.Thanks.

    August 2, 2010 at 7:37 pm |
  3. Oladipo Akinyemi Omole

    Dear
    John,
    There are also challenges for all oil producing regions and OPEC which
    you alluded to in your analysis.God in his infinite wisdom has segmented
    the oil industry into regional zones which are largely ignored in the
    supply and distribution of crude oil world wide or so it seems.
    In the Americas you have Argentina , the troubled Gulf of Mexico , Texas
    and Alaska.
    Asia also has its own oil producing regions or some that are contiguous
    to the region.
    In Africa Nigeria,Cameroon, Guinea, Libya and Angola have immense
    deposits of crude oil. But all oil producing countries want to ship
    their crude to the United States and Europe not minding the fact that
    it's cumbersome and not that efficient like you pointed out in your
    analysis, if I read you correctly.
    The supply of crude oil should be conducted with an elaborate network of
    pipelines as it is in the Persian Gulf.
    These regional crude oil producers should service regions which are
    contiguous to them instead of causing unnecessarily hold-ups and
    hardship in their destinations.Of course they must be incurring a lot of
    charges while waiting to deliver their cargo and this inevitably cuts
    into their revenue and ultimately their profits.

    August 3, 2010 at 12:25 pm |
  4. Oladipo Akinyemi Omole

    Ok , thanks.

    August 3, 2010 at 12:26 pm |
  5. Oladipo Akinyemi Omole

    Hello John,
    I really learn a lot from all of you on how it is world-wide in business and all other spheres of human endeavor and I can only say the best is yet to come and it can only get better.Cheers

    August 6, 2010 at 10:12 pm |

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