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How Vulnerable Is Europe To Conflict In Strait Of Hormuz? – Analysis

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By Dave Keating

(EurActiv) — The involvement of a British tanker in the latest military incident with Iran in the crucial oil shipment choke point has pulled Europe into the fray.

Until last week, the tension in the Persian Gulf seemed to be leaving the European Union out of the fray. May’s attack on Saudi oil facilities and June’s attack in the Strait of Hormuz on oil tankers from Norway and Japan heading to Taiwan and Singapore did not involve EU countries.

But on 10 July, three gunboats operated by Iran’s Islamic Revolutionary Guard Corps attempted to steer a British oil tanker out of international waters and into Iranian waters, according to the British government. A British Royal Navy frigate then threatened the vessels, after which they retreated.

The incident, the first to bring an EU member state into the escalating conflict, may have been a response to the seizure of an Iranian oil tanker off the coast of Gibraltar by the British Royal Marines on 4 July. The UK says the tanker was carrying Iranian oil to Syria, in breach of EU sanctions.

Tensions may escalate further between Iran and the EU after it emerged today a French-Iranian academic has been arrested in Iran. It comes as the EU decided not to activate a dispute mechanism in the Iranian nuclear deal, after Iran started activities that violate the agreement, saying Europe was not meeting its commitments. Donald Trump pulled the US out of the deal last year, triggering the current conflict.

The tensions have already affected global oil prices, but its effect on Europe’s oil supply may be muted – as long as things don’t escalate much further.

EU, US less exposed than Asia

The Strait of Hormuz is the world’s most important oil chokepoint, seeing about 21% of global petroleum liquids consumption pass through each year. But the majority of oil that passes through – 76% in 2018 – is going to Asian countries. The largest destinations are China, India, Japan, South Korea and Singapore.

Both the European Union and the United States are less reliant on oil from the Persian Gulf than they used to be, with the EU getting most of its oil and gas now from Russia, Central Asia, Africa and the North Sea.

A short-term conflict in the strait would therefor hit these Asian importing countries first. But would a long-term conflict effect global oil prices, causing higher energy prices for European consumers?

While a severe conflict would certainly affect global prices, analysts say even this would have a more muted effect than in years past, thanks to a more globally diversified oil market. One big change has been the shale-drilling boom in the United States, which has caused American oil and gas production to skyrocket. US oil production increased by 17% last year.

This explains why the reaction to the recent incidents, which would have thrown market into a panic 20 years ago, has so far been relatively muted.

As the prospect of an armed conflict between the United States and Iran grows, with Europe being caught in the middle, the diversified global oil supply may not be enough to calm market jitters. But for the moment, the EU looks relatively insulated from the incidents in the Strait of Hormuz.



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