If the Strait of Hormuz Closed, Which Oil Importing Region Would Suffer the Greatest Loss?

A few days ago, I came across this RTV interview and article, Strait Answer: Iran prepares to close Hormuz, on tv.globalresearch.ca:

     The interviewee, Gareth Porter, posited that Iran could drop a few mines in the Strait of Hormuz to cause the passageway to close down for a few weeks while the US military located and disabled the mines, and thereby cause the market price of oil to spike upwards for a time. 

     This started me to wonder: if Iran could actually succeed in continuously place a few mines in the Strait every few weeks, maybe even a mixture of real and fake mines, which importing regions would be most affected by a subsequent extended closing of the Strait of Hormuz with respect to oil tanker flow? 

     That is, which region would actually suffer the most oil import losses:  North America, Europe, Japan, China, the other Asia Pacific countries, or, some other region?

What about the Middle East exporters?

     For the most part, I limit my analysis to considering export destinations.  But, my hunch is that it would be the Middle East itself that would suffer the most economic hardship, due to the loss of income from selling oil on the global market.  

     And, of course, other oil exporting regions, like Russia and the other former Soviet Union countries, Africa, and South America, could actually benefit as the price of oil spiked upwards.

Here are some examples of Middle Eastern countries that are highly dependent on oil income.  Oil exports account for about 80% of Saudi Arabia’s budget revenues and 45% of its GDP.  For Iraq, oil exports provide more than 90% of government revenue, and the majority of government revenues in Iran. For Kuwait, petroleum accounts for nearly half of GDP, 95% of export revenues, and 95% of government income.  For Quater, oil and gas accounts for more than 50% of GDP, and, 70% of government revenues. 

     I think you get the picture. 

     An extended period of lost oil export revenues would crush the economies of these countries, and especially the federal government’s revenue base.  This, in turn, would cause a great deal of societal disruption.  The main stream media would probably try to put a happy face on the ensuing protests from citizen of these countries, as a new “Arab Spring,” as it were. 

     But, the protests would about the loss of basic services and resources due to the lost oil revenue.  I also think that it is the transitioning from being  a net oil exporter to a net oil imports, and the ensuing lost revenue, that is an important cause of the protests in Bahrain, Egypt, Syria, Oman, and Yeman (see e.g., Survey of Oil Exports from the Middle East and Survey of Oil Exports from North Africa).

     Needless to say, the governments of the Middle Eastern countries have great motivation to continue exporting oil, but, what if their route for exporting was cut off?

The Importers of the Middle East’s Oil

     Quoting the EIA, the globalresearch.ca article gives some strong clues as to who the greatest sufferers might be:

{The EIA said} ... theStrait of Hormuz was the world’s “most important oil transit chokepoint,” with a daily flow of 17 million barrels per day in 2011. This constitutes roughly 35 per cent of all seaborne traded oil, or 20 per cent of all oil traded worldwide.

.....

Over 85 per cent of the oil tankers passing through the strait were heading to destinations in East Asia, the majority of these going to China, India, South Korea and Japan.

However, I still have some questions: how does the 17 million barrels per day exiting through the Strait of Hormuz compare to the Middle East’s total exports; which of these export destination regions is relatively most dependent on the Middle East’s oil; and what about the Middle East’s exports to other regions?

     I can provide answers to all of these questions from my recent 12-part series studying the Inter-Regional Trade Movements of Petroleum for nine different regions around the world, and, from the just-published statistics from BP. 

     1)  Relative flows of Middle East’s out of the Strait of Hormuz

From the Inter-area movements table of the 2012 BP review (which gives the 2011 statistics) the Middles East’s total exports was 19.75 mbd.  Therefore that 17 mbd quoted by the globalresearch.ca article corresponds to 87 percent of the Middle East’s exports.

     2) The Middle East’s export destination

Take a look at this time-cut from my animation of the major trade flow movements of petroleum exports(from ~8 min of   Trade Movements of Petroleum Part 2 ):

     The time cut is from 2010, the latest year I had at the time of my analysis, but I think this gives a pretty good visual indication of where the Middle East’s exports (light blue arrows) are currently flowing to.   Basically the region at greatest risk are the ones that mainly have the large blue arrow pointing to them—that would be Japan and the remaining Asian Pacific countries besides China and Japan. 

      3) The Middle East’s import contribution to regional oil consumption

The chart below quantifies the petroleum imports from the Middle East as a percentage of each region’s total petroleum consumption (once again using my 2010 analysis):

     As you can see, for 2010, Japan’s imports of petroleum from the Middle East corresponded to 81.5 percent of its total petroleum consumption.  Roughly then, for each 100 barrels consumed, 81.5 of those barrels came from the Middle East. 

     If the Middle East’s exports through the Straits of Hormuz were halted, and therefore 87 percent of the Middle East’s exports were stopped (see point (1) above), and, if the remaining exports were proportionally distributed among all of the export destinations, then Japan’s imports of oil should decline by at least 71 percent.  That is, considering the above example, instead of 81.5 barrels of the Middle East’s oil being imported by Japan, this number is reduced by 87 percent, or 71 barrels, to just over 10 barrels. 

     I think that this would be the minimum reduction to Japan because, the assumption that the remaining exports were proportionally distributed, is a very big if.  While other regions, like Europe and the remaining Asia Pacific countries could directly get some of the Middle East’s oil flow from pipelines, this is not the case for Japan.  

     A close second in dependency on Middle East oil are the remaining Asia Pacific countries, at 60.2 percent.  I took the consumption statistics and inter-area movement statistics from the 2011 BP review, and parsed this region down somewhat, where the data was available, and presented the 2011 BP data for Japan and China in the following table:

Middle East Imports as a Percentage of Total Consumption for Select Asian Countries
Country	Consumption (mbd)	Imports from ME (mbd)	ME Imports as a percent of consumption
Japan	4.42	3.53	79.9
China	9.76	2.77	28.4
India	3.47	2.22	64.0
Australasia	1.15	0.17	14.7
Singapore	1.19	1.22	97.5

     The percentages for Japan and China are  are in pretty good agreement with the underlying data shown in 2010 chart.  The individual percentages for India, Australasia (Australia plus New Zealand) and Singapore, illustrate the broad range of dependence on Middle East’s Oil Imports.  The high percentage for Singapore is misleading, because Singapore turns around and re-exports most of the oil it imports.  E.g., in 2011 Singapore imported 4.5 and 2.8 mbd of crude oil and petroleum products, respectively, and then exported 0.014 and 1.8 mbd of crude oil and petroleum products, respectively).  But, almost all of Singapore’s exports (1.7 mbd) go China, Japan or the remaining Asia Pacific countries. 

4) Other regions dependency on Middle East

     Perhaps you are surprised to see China and Europe at 26.3 and 15.5 percent respectively, and, North America at only 7.8 percent?   The reasons for this become clear as you look at that map showing my time cut from 2010.  China, Europe and North America all have a diversity of oil import sources, whereas Japan doesn’t have nearly as much diversity.  The remaining Asia Pacific countries also have a variety of import sources as well, but by far, their largest import source is the Middle East, and this is why this region would suffer the second greatest losses of petroleum, next to Japan. 

     If the last decade’s trends continue, then there is a good change that Japan’s, China’s and the remaining Asia Pacific region dependency on Middle East imports will increase, and Europe’s and North America’s dependency will decrease. 

     For Europe, this is not necessarily a good sign.  For instance, here is another time cut from that animation sequence, extrapolated out to 2021:

It seems that Europe is on a trend to simply trade its oil import dependency from the Middle East to the former Soviet Union country, and to a lesser extent, this is also the case for North America.  --------------------------- Sorry about the unfriendly formating....I guess one way to force bloggers to the new interface is to degrade the old verison's formating capabilities, which used to be okay, but which are now non-existent.