The Impact of Strait of Hormuz Blockade on the Oil and Gas Industry

This report delves into the significant impact of the Strait of Hormuz on the global oil and gas industry, examining potential disruptions and economic consequences. The study analyzes two key approaches to mitigate the risks associated with a potential blockade: cooperative sharing and infrastructure development. The report critically evaluates the effectiveness of each strategy, considering their operationalization and potential benefits. It also explores the specific challenges and impacts that a Strait of Hormuz blockade would pose, including effects on key importers like China, price inflation, and supply chain disruptions. The analysis includes insights into the economic vulnerabilities of countries dependent on oil and gas exports and imports, and concludes with an overview of the mitigation strategies to overcome the challenges. The report is based on research from various sources, including journal articles and online resources, providing a comprehensive overview of the topic.

Oil and gas

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Critically analyses of two approaches....................................................................................1
How they can be operationalised to mitigate a potential blockade........................................2
Describing the potential impact that Strait of Hormuz will have on oil and gas industry.....3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Energy growth is directly linked to the well being as well as prosperity in the globe. The
present report is based upon a case scenario of oil transportation of the routes of Gulf and Strait
of Hormuz and the entire international energy market is depended upon transport routes. At that
time there are other vulnerability with potential disruption scenarios which are ranging from
small scale local terrorism and creates conflicts with interstate. The report present two
approaches and how they can be mitigate the blockade along the Strait of Hormuz and further it
describe the potential impact which Hormuz will have by using specific examples.
MAIN BODY
Critically analyses of two approaches
As the security of energy exports and energy transit from MENA region and further it
also gives the importance of global economy and further the region is also have the history of
disruption to oil as well as gas production and transportation (Beccue and et.al., 2018). For more
than 60 years the energy sector has contribute its best part for the welfare of the economy of a
country. The route through Gulf and Strait of Hormuz has also some interstate conflicts that is
why there are two approaches which help to mitigate the supply disruption and these are
mentioned below:
 By cooperative sharing, these interstate conflicts can be mitigate. For example, the
groups which come in between the routes of Strait of Hormuz and Gulf can strengthen up
the institution and mechanism in order to deal with energy supply disruption. Therefore,
it will help to overcome the vulnerability between the routes and as a result, the oil
transportation can easily be managed (Li, Jin and Shi, 2018). Even the cooperative
sharing from each groups will also help to deal with the energy supply disruption.
However, it has been critically evaluated that this is a simple and inexpensive method
which help oil and gas industry to solve their issues such as small scale local terrorism
and conflicts between interstate conflicts.
 Another approach is constructing and upgrading the infrastructure which helps to provide
an alternative export routes and then protect the existing ones. Moreover this approach is
also useful to overcome the temporary disruption and can export the oil and gas in their
exact destination. If this is applied by the all transportation then it will definitely help to
1

solve the conflicts between many interstate and produce the best output for an industry.
For example, with defence and aerospace technology which is one of the most successful
plan that is actually uses by the government and therefore, oil industry should also adopt
this technology and enhances their best business outcomes (Narula, 2018). However it
has been critically evaluated that for the industry, it is expected to provide the huge
expenditure outlay in order to develop the technology but if it is done then it will
definitely help to minimizes the conflicts between interstate and through changing the
export routes also help to solve the problem up to some extent.
How they can be operationalised to mitigate a potential blockade
Cooperative sharing is the best approach to mitigate the challenges that facing by the
industry in the process of transportation of oil. This cooperative approach is helping to
understand the needs of employees in order to work together in the best effective manner (Gholz,
2018). This would give the best and effective management team process which is very much
benefited for the company. The main purpose of this approach is to pooling of risk and make
high ability to implement the challenges and risk involved in the process. Cooperative sharing is
the process to work together in advanced manner. Apart from that, it becomes the new
generating target or opportunity for the company to implement new challenging task goals.
Cooperative sharing mitigate the transportation issue of the oil and gas industry through
which it can easily transfer oil to gulf countries. The greatest benefit of cooperative sharing
approach is equality involved in its management styles which helps to reduce the misconception
among individualise (Wellesley and et.al., 2017). This approach makes business more stable
comparatively other businesses. Also, it helps to mitigate the conflict of terrorism within the
process of targets. It mitigates the democratic process through eliminating the potential barriers
and improper way of implementing task. Cooperative approach is less expensive for the
company to adopt in within the company environment.
Constructing and upgrading the infrastructure is the another approach which is also
beneficial for the company as well. This also can help in reducing the issues by making new
ways of transportation process or goals. This helps to reduce blockade by facilitates roadways for
oil transportation. It helps to sustain better eco- environment and new way of transferring oil
from one place to another. It helps to provide interconnectivity of ways and reduce the
transferring cost as well (Gholz, 2018).
2

New infrastructure helps to enable sound economic development, job creation and the
purchase of local goods and services. This helps company to mitigate environmental challenges
and also helps to contributing in corporate social responsibility. Economic benefits can be the
result of reducing material, improved pollution, reduced carbon emissions etc. overall, both
approaches helping to mitigate the negative influencing challenges to take effective performance.
Describing the potential impact that Strait of Hormuz will have on oil and gas industry
The more and more explicit nuclear rhetoric and the danger of a blockade of the Strait of
Hormuz might cause the conflict to increase. It has given rise to major issues about which the oil
and gas companies have high concerns. The reason for occurrence of various challenges and
issues are tentative ban on European imports of Iranian oil. As Strait of Hormuz link the Persian
Gulf in the West with the Gulf of Oman and the Indian Ocean in the East, a blockade will have
short-term consequences (Kitamura and Managi, 2017). China is a country which will get highly
effected by blockade of the Strait of Hormuz. This incident will have major effect on import of
oil and gas by China from mainly two countries these are Iran as well as Saudi Arabia.
Approximately more than forty percent china import of oil and gases passes through the Strait of
Hormuz. If in case, Iran maintains a blockade for only a short while there will be a high
consequence which would have long termed effect on import as well as exports of oil and gas
(CLIFFORD, 2012). The increase in prices of products and services is the major issue faced by
oil and gas industry. Inflation has direct as well as significant effect on the sales and profitability
of companies operating business in oil and gas industry. It is very difficult to analyze the long
term effect. The other issues faced by companies operating its business in oil and gas sectors is
that organizations are facing difficulty in getting the timely supply of raw material. In addition to
this, blockade of the strait has also greatly as well as significantly effected the oil exports of Iran
(Robbin M., 2018 ).
Economy of Iran country is largely dependent on oil industry. Due to low refinery
capacity Iran has to import heating oil and petrol from other countries. Qwuatar is the Gulfd
nation which produces LNG gas, but in context of oil there is no technique of eliminating the
Strait of Hormuz for LNG. Blockade will also affect the countries such as Korea, Asia, japan,
India, as these nations imports oil and gas from Gulf countries (Cordesman, 2018). There in
decrease in deliveries of LNG gases. In addition to this, blockade will give rise to inflation in
prices of oil and gases. Blockade will have drastic and negative impact on the market. It will also
3

have direct as well as great influence on freight industry in Gulf nation, because sea shipments
could hardly be insured any longer (Beccue, Huntington and Vincent, 2018). In addition to this,
China might have to suffer big losses, as nation has made big investment in Iranian oil fields and
has opposed Western efforts to sanction Iran over its nuclear program. Blockade will have direct
as well as significant impact on economic conditions of various countries which are mainly
dependent on oil and gas industry. Strait of Hormuz would most likely bring China and the
United States into an alliance to restore shipments.
CONCLUSION
On the basis of the above report it has been analysed that, approaches to mitigate the
blockade along the strait of Hormuz was the biggest issue in transferring the oil transportation.
Study based on two approaches which is cooperative sharing and constructing and upgrading the
infrastructure, study also analysed these two approaches in critical manner to identify the
potential impact or growth on the process. Study also has been discussed about constructing and
upgrading the infrastructure that it helps to make the alternative way of transporting oil. On the
contrary, this approach also high expensive and challenging for the Oil and gas businesses. On
the other hand, report also been discussed about the cooperative sharing approach which helps to
reduce the chances of conflict. However, report it also described about the potential impact that
strait of Hormuz will have on oil and gas industry. Overall, study has been explained about the
mitigation or approaches to overcome those issues.
4

REFERENCES
Books and Journals
Beccue, P. C. and et.al., 2018. An updated assessment of oil market disruption risks. Energy
Policy. 115. pp.456-469.
Beccue, P. C. and et.al., 2018. An updated assessment of oil market disruption risks. Energy
Policy.115.pp.456-469.
Cordesman, A. H., 2018. Bahrain, Oman, Qatar, and the UAE: Challenges of security.
Routledge.
Gholz, E., 2018. Restraint and oil security. In US Grand Strategy in the 21st Century (pp. 58-79).
Routledge.
Kitamura, T. and Managi, S., 2017. Energy security and potential supply disruption: A case study
in Japan. Energy Policy.110. pp.90-104.
Li, K. X., Jin, M. and Shi, W., 2018. Diversification as an energy importing strategy for China
under the Belt and Road Initiative. International Journal of Shipping and Transport
Logistics. 10(3). pp.335-354.
Narula, K., 2018. Maritime Security and Its Role in Sustainable Energy Security. In The
Maritime Dimension of Sustainable Energy Security (pp. 117-142). Springer, Singapore.
Wellesley, L. and et.al., 2017. Chokepoints in global oil trade: Assessing the risk. Research in
Transportation Business & Management. 25. pp.15-28.
Online :
CLIFFORD. K., 2012. Oil Price Would Skyrocket if Iran Closed the Strait of Hormuz.
[Online].Available through <https://www.nytimes.com/2012/01/05/business/oil-price-
would-skyrocket-if-iran-closed-the-strait.html>.
Robbin M., 2018. Strait of Hormuz is not the most dangerous risk for blockade.
[Online].Available through <https://www.thenational.ae/business/energy/strait-of-hormuz-
is-not-the-most-dangerous-risk-for-blockade-1.755062>.
5