Why These Oil Routes Could Become Hotspots in the Future

The escalation of the dispute related to the strait of Hormuz shows how vulnerable many of today’s oil routes are. What oil shipping routes and bottlenecks could become hotspots in the future?

The dispute of oil shipments through the Strait of Hormuz can be said to have begun in 2019. However, the threats of blocking shipments through the strait have been a constant in Iran’s foreign relations.

This time, the threat came because of USA’s exit from the JCAP, and the subsequent block on Iranian oil exports.

Iran doesn’t have a strong reason to lose one of its largest bargaining chips. Hence, a full block in 2019, or the near future, isn’t going to happen. Instead, the closing of Hormuz will continue to be used as a scare tactic.

The strait of Hormuz isn’t going to become a hotspot because of an oil shipment blockade. Instead, these three routes and bottlenecks could meet this fate in the near future.

Suez Canal in Egypt has the potential to become a hotspot. Terrorism in Egypt is on the rise, and intra-country problems haven’t improved since the Arab Spring.

Tensions in some regions of Egypt (North Sinai, particularly), and the declined economy of Egypt, both could be a catalyst, and the impacted area, because of potential problems with the Suez canal.

Egypt’s economy in numbers is radically different from the proposed plans of development. The relocation of Egypt’s capital, Cairo; the proposed large-scale projects in North Sinai; and the reclamation of desert land does not fit in with the recent poor showing of Egypt’s economy.

Regional dissatisfaction with the central government, and a weak economy are never indicators of a strong state. This is the current state of Egypt – residents committing terror acts directed at the central government, and the economy not having recovered after the overthrow of two leaders.

The most likely possibility of the blockade of the Suez could come from either the terrorists operating in Egypt, or another case of government overthrow. After local terrorists in North Sinai started operating as a subsidiary of Daesh, the security risk in this region increased. Moreover, civilians being targeted for terror attacks means that operations of even larger impact have become a viable possibility.

The security case for oil shipments in Suez canal is complicated by the two southern neighbours of Egypt – Sudan and Eritrea. The internal problems of these countries have the potential to bring negative consequences to Egypt, and its internal security.

While Eritrea is a drawn-out case of internal problems, Sudan could see another overthrow if the conditions in the country won’t improve. After all, the transitional government has to deliver reforms quickly, even if it is impossible to fix three decades of a dictatorship in a short time frame.

Libya’s governments haven’t moved to unification. Good news is that the fighting between the two main factions at least has not moved into foreign territory.

The country’s main export is oil, and the main extraction fields are under the governance of LNA. A disturbance in the shipments of oil through Suez, and the subsequent higher oil prices would benefit this internationally unrecognized faction.

Historical background of Egypt’s governance of the Suez points to positive conclusions. In all of the history of Egypt’s management of the Suez canal, it only has been closed to foreign vessels during wars.

Another important route for oil is the Bosphorus. 2.46% of the world’s crude oil and petroleum liquids were shipped through the Bosphorus in 2016.

After the failed coup in 2016, the security state in the western part of Turkey has stabilized. On the west, Bulgaria and Greece present a non-existent threat to the steady flow of shipments through the Bosphorus.

From the point of view of economics, Turkey has been able to easily come back both after a worldwide downturn, and after intra-country problems. Turkey’s unemployment level has remained at the same level since 2016. A growing manufacturing sector and a steady unemployment level, mean that at least from the economic side, Turkey’s situation is not getting worse.

Shipments of oil could be stopped, if Turkey’s goals will diverge from the countries, or the allies, of oil companies using the Bosphorus. In the past, Turkey’s government has not been above using economic threats. When relations worsened with Russia, Turkey took steps to delay the passage time of the ships. After a diplomatic spat with the US, Turkey imposed tariffs on American goods.

For oil shipments, Central Asian countries (Kazakhstan, Azerbaijan) and Russia, are the main users of the Turkish straits. It means that these governments, at least, would not be interested in starting a conflict with their logistics partner country.

If the past trends of Turkey’s bargaining will continue, a hard move, instead of soft sanctions, has a low probability of happening. After all, Turkey has much more to gain, and less to lose with economic or diplomatic sanctions.

Moreover, the president of Turkey, Mr. Erdogan is enjoying a strong level of support – 39.1%. More impactful moves are not only unnecessary, in the context of gaining voter support, but also could harm the president’s chances at re-election.

Hypothetically, if the migrant flows from MENA to Europe through Turkey will start to increase, and the support from EU to Turkey for their management will decrease, protests from Turkish refugee supporters, or violence from migrants is a possibility.

If a conflict impacting the shipments through Dardanelles were to occur, it would have a large impact on the balance of power in the region.

A slowdown in the shipments through the Bosphorus could highlight how oil and petroleum products still rule many of the world’s powerful economies. Or, why location and physical trading routes still matter in a now largely digital world.

The very large repercussions to the Turkish power in the Black Sea and the Mediterranean regions, would be the most negative consequence for the owner country of the Bosphorus. Turkey is still on its way to firmly establishing itself as not only a regional power. Oil exporters exploring alternative routes to the Turkish straits, could threaten Turkey’s geopolitical gains.

Another strait, Bab el-Mandeb and the Eastern Africa shipping route, has seen major security improvements in recent years.

For one, the military bases of three countries (USA, Russia, China) in Djibouti contribute to a safer transportation of goods in the strait of Bab el-Mandeb. Goods, which include 4.94% of world’s oil and petroleum products shipped in 2016.

The Eastern African oil shipping route has received worldwide attention because of the activities from the pirates from Somalia and its contested territories. Attacks on oil tankers are rarer than attacks on other ships. Piracy in the Eastern Africa declined in the late 00s – early 2010s, but could be making a comeback due to Somalia’s increasingly fragile state.

The most likely possibility for a blockade has changed from internal problems of the surrounding Eastern African countries to the conflict caused by Yemen’s rebels. Both pose a low risk against the military and negotiating power of the countries using the strait.

The regions, which would be hit the hardest if shipping through the Bab el-Mandeb became impossible, are the importing regions like Europe, and exporting regions of Africa and Asia. A larger share of oil through the strait flows northwards towards Europe. This means that the Bab el-Mandeb becoming a hotspot would contribute more negatively to the exporters orienting their oil exports towards Europe.

Conflict escalation in Eastern Africa, and some of its poorer states (by a measure of GDP per capita), won’t only negatively impact the countries exporting or importing oil through the Bab el-Mandeb. News even about unrelated negative events or trends in a region, have the power to decrease investor confidence. Especially, in a region where foreign investments have just started to flow.

For every push to conflict, stabilizing factors also exist. The low economic development and political instability in the countries surrounding the strait, would only get worse if the Bab el-Mandeb became a hotspot. The increasing military presence in the area, and the gamble with even worse living conditions should prevent domestic activists from destabilizing this oil route.

Transfer of revenues and power, onto alternative shipping lines, is also a major stabilizing factor.

Not only the main managers of these potential hotspots, are interested in keeping them stable. Many nearby countries and industries benefit from oil shipments in Suez, Bosphorus, and Bab el-Mandeb. The probability that a certain location in the world will move towards instability, hinges on many factors. It’s possible to take into account all of them. Yet, an unexpected or an underestimated force can muddle all constant inputs.