Washingtonpost.Newsweek Interactive, LLC

The Coming Supply CrunchAuthor(s): Fatih BirolSource: Foreign Policy, No. 174 (September/October 2009), p. 105Published by: Washingtonpost.Newsweek Interactive, LLCStable URL: http://www.jstor.org/stable/20684920 .

Accessed: 14/06/2014 21:14

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@jstor.org.

.

Washingtonpost.Newsweek Interactive, LLC is collaborating with JSTOR to digitize, preserve and extendaccess to Foreign Policy.

http://www.jstor.org

This content downloaded from 195.78.108.199 on Sat, 14 Jun 2014 21:14:52 PMAll use subject to JSTOR Terms and Conditions

The Strait Dope Why Iran can't cut off your oil. By Eugene Gholz Supertankers carry about 90 percent of

Persian Gulf oil exports through the Strait of Hormuz each day, satisfying some 20

percent of worldwide demand. For maximum safety, the International Maritime Organization suggests that the huge, difficult-to-maneuver ships travel within a designated channel while in the strait, but that channel is only a few miles wide. With such a narrow passage, many experts fear that an attacker (read: the Iranian military) could "close the strait."

The Iranians appreciate the concern: Ex plicit threats to the strait are a key component of their foreign policy. Alternate routes could only carry a fraction of the oil, so a disruption could cause a major price spike that would severely threaten the global economy.

But the conventional wisdom may be wrong. Regardless of how we assess the credibility of Iran's threats, we should also assess Iran's capabilities. Iranian military exercises apparently emphasize three weapons in the strait: small suicide boats, mobile antiship cruise ^^mm missiles, and sophisticated sea mines. Using these tools, how

^1^1 hard would it be for Iran to mm1 disrupt the flow of oil? m 11

The answer turns out to be: very hard. Iran would have to disable many of the 20 tankers that traverse the strait each day?and then sustain the effort. Iran cannot rely on the psychological effects of a few hits. Historically, after a short panic, commercial shippers adapt rather than give up lucrative trips, even against much more effective blockades than Iran could muster today. Shippers didn't stop trying during World War I. Nor did the oil trade in the Gulf seize up during the 1980s Tanker War, when both Iraq and Iran targeted oil exports.

Instead, tankers tend to move around dangers. The strait is deep enough that even laden supertankers can pass safely through a 20-mile width of good water, not just the 4-mile-wide official channel. Tankers already

take other routes when it is convenient; during a conflict, they would surely scatter, as they did in the 1980s. Although the strait is narrow compared with the open ocean, it is still broad enough to complicate Iran's effort to identify targets for suicide and missile attacks. The area is too large to cover with a field of modern mines dense enough to disable a substantial number of tankers, especially given Iran's limited stockpile.

What's more, tankers are hard to damage with mines or the small warheads on modern missiles. And a big ship pushes a tremendous amount of water out of its way when it is moving; tankers' bow waves would fend off most small boats attempting suicide attacks. Terrorists hit the USS Cole and the Limburg because their targets were stopped.

Surprisingly, oil tankers also do not burn well. They gener ally have too much fuel and not enough oxygen to sustain a blaze. Only a tiny fraction of their bulk contains sensitive equipment that, if damaged, would disable the ship. The sui

Qcide attack on the Limburg was / a lucky shot that hit a boundary / between a full cargo cell and

jtk an empty one full of air, so the

I ^ fuel-air mixture caught fire. Even so, three days later, the ship was

able to move under its own power, and after repairs, it returned to the global tanker fleet. Over five years of the Iran-Iraq War, 150 large oil tankers were hit with antiship cruise mis siles, but only about a quarter were disabled.

So what? By presuming that Iran can easily close the strait, Western diplomats concede leverage, and the current U.S. habit of reacting immediately and aggressively to Iranian provocations risks unnecessary escalation. Iran would find it so difficult, if not impossible, to close the strait that the world can afford to relax from its current hair-trigger alert.

Eugene Gholz is associate professor at the University of Texas at Austin.

3

The Coming Supply Crunch By Fatih Birol

The financial crisis that sent shock waves through the global economy is now reverberating in the energy world. Credit is hard to come by, the demand for energy is

down, and cash flows are falling. So what will this mean for the future of the oil industry?

The short answer is: not as much as you might think. Even as market analysts everywhere are racing to revise their forecasts, the underlying trends will remain largely unchanged over the medium to longer term. To our knowledge, the International Energy Agency (lEA)'s World Energy Outlook 2008, which was published last November during the most turbulent period of the financial crisis, provided a more detailed assessment of oil-supply prospects than has ever before been released publicly. In the lEA's business-as-usual scenario, which assumes

that policies won't change, oil demand continues to grow strongly up to 2030. All of the projected increase is expected to come from emerging markets, led by China, India, and the Middle East, while the bulk of the increase in supply is expected to come from OPEC countries. The prospect of accelerating declines in production at individual oil fields will represent a key challenge. Even if global oil demand remained flat until 2030, our analysis suggests that some 45 million barrels per day of additional gross capacity?the equivalent of four times the current capacity of Saudi Arabia?would need to be brought online simply to offset declining production at existing fields.

Thankfully, the world has enough oil to support this growth in output. But here's where the financial crisis matters: A lack of investment where it is needed, particularly in the short to medium term, has become a key risk to supply. We esti mate that global upstream oil and gas investment budgets for 2009 have already been cut about 21 percent compared with 2008?a reduction of almost $100 billion. There is a danger that investment in the coming months and years will be reduced too much, pushing up decline rates and leading to a shortage of capacity when the economy begins to recover. To complicate matters, rich countries, as they depend on ever more imports from ever fewer sources, are becoming more

vulnerable to supply disruptions and sharp price hikes. In the long run, if governments don't take stronger policy

action, rising consumption of fossil energy will drive up emis sions and atmospheric concentrations of greenhouse gases, putting the world on track for an eventual global temperature increase of up to 6 degrees Celsius. At the global level, we will need to use all of our energy options simultaneously. We need to combine greater energy efficiency with increased deployment of renewable and nuclear energy, while minimizing our depen dence on using oil, gas, and coal in an unsustainable way.

But even if we succeed, the oil industry won't be going away; low-carbon technologies won't replace fossil energy overnight. That's OK: Not only will there still be demand for oil, but today's oil industry runs on the type of transferable skills the world needs to shift toward the low-carbon fuels of tomorrow.

Fatih Birol is chief economist at the International Energy Agency.

September October 2009 105

This content downloaded from 195.78.108.199 on Sat, 14 Jun 2014 21:14:52 PMAll use subject to JSTOR Terms and Conditions