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Transportation of oil and gas from the Middle East can be disrupted if any of the routes are disrupted which can affect the price of crude oil in particular if they are choked off.  The Strait of Hormuz is the major choke point.

Strait of Hormuz

The Strait of Hormuz is considered the most vital chokepoint in the maritime world as it around 19 million barrels of oil per day (mb/d) are shipped alonmg the waters, according to the EIA.

The narrowest point of the Straight of Hormuz is just 21 miles wide. Oil exports from Iraq, Iran, Kuwait, Bahrain, Qatar (including large volumes LNG exports), the UAE and Saudi Arabia pass through to their destination. LNG also travels through the route with Qatar currently the world's largest exporter of LNG bound by the strait.

The US Navy patrols the area given its strategic importance and the existance of pirates and the threat of Iran. The U.S. Navy's 5th Fleet is deployed in the Persian Gulf, with aircraft carriers, ships and aircraft. On average there have been 2.5 interactions per month between January 2016 and August 2017 with Iranian navy forces, the U.S. Navy has said. The United States also has military personnel stationed in Saudi Arabia, Kuwait, Bahrain and Turkey.

In the past Iran has threatened to disrupt oil traffic through the Strait. Oil markets are routinely subjected market rumor and one that rears it's head (usually when the managed money market is very long) is Iranian news, These often come in thin market times where news algorithms do the most damage.

This can give opportunity (or pain) to hedgers and speculators. The key is to understand the true risk, the over extension or whether it is the beginning of something significant.

Arabian Peninsula

In this series on chokepoints we look at the four major pressure paths either side of the Arabian Peninsula. The other three choke points are:

  1. The Bab al-Mandeb Strait
  2. The Straight of Malacca
  3. The Suez Canal and SUMED Pipeline.

From The Traders Community Research Desk


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