In 2003, the Persian Gulf countries (Bahrain, Iran, Iraq, Kuwait,
Qatar, Saudi Arabia, and the United Arab Emirates) produced about 27%
of the world's oil, while holding 57% (715 billion barrels) of the
world's crude oil reserves. OECD gross oil imports from Persian Gulf
countries averaged about 11.6 million barrels per day (bbl/d) during
2003, accounting for 46% of the OECD's total net oil imports. Besides
oil, the Persian Gulf region also has huge reserves (2,462 trillion
cubic feet -- Tcf) of natural gas, accounting for 45% of total proven
world gas reserves.
GENERAL BACKGROUND
The Persian Gulf, also known as the Arabian Gulf, is a 600-mile-long
body of water which separates Iran from the Arabian Peninsula, and one
of the most strategic waterways in the world due to its importance in
world oil transportation. At its narrowest point (the Strait of
Hormuz), the Gulf narrows to only 34 miles wide.
There have been, and continue to be, significant territorial disputes
between Persian Gulf countries. Besides the Iraqi invasion of Kuwait
in August 1990, and before that the Iran-Iraq War from 1980 to 1988,
another important dispute is between the UAE and Iran over ownership
of three islands -- Abu Musa, Greater Tunb Island, and Lesser Tunb
Island, all strategically located in the Strait of Hormuz. The three
islands were effectively occupied by Iranian troops in 1992. In 1995,
the Iranian Foreign Ministry claimed that the islands were "an
inseparable part of Iran." Iran rejected a 1996 proposal by the Gulf
Cooperation Council (GCC) for the dispute to be resolved by the
International Court of Justice, an option supported by the UAE. On
December 31, 2001, the GCC issued a statement reiterating its support
for the UAE's sovereignty over Abu Musa and the Tunbs, declared Iran's
claims on the islands as "null and void," and backed "all
measures...by the UAE to regain sovereignty on its three islands
peacefully."
OIL AND GAS RESERVES, PRODUCTION, CAPACITY
The Persian Gulf contains 715 billion barrels of proven oil reserves,
representing over half (57%) of the world's oil reserves, and 2,462
Tcf of natural gas reserves (45% of the world total). Also, at the end
of 2003, Persian Gulf countries maintained about 22.9 million bbl/d of
oil production capacity, or 32% of the world total. Perhaps even more
significantly, the Persian Gulf countries normally maintains almost
all of the world's excess oil production capacity. As of early
September 2004, excess world oil production capacity was only about
0.5-1.0 million bbl/d, all of which was located in Saudi Arabia.
According to the Energy Information Administration's International
Energy Outlook 2003, Persian Gulf oil production is expected to reach
about about 26 million bbl/d by 2010, and 35 million bbl/d by 2020,
compared to about 21.7 million bbl/d in 2000. This would increase
Persian Gulf oil production capacity to 33% of the world total by
2020, up from 28% in 2000.
In 2003, Persian Gulf countries had estimated net oil exports of 17.2
million bbl/d of oil (see pie chart). Saudi Arabia exported the most
oil of any Persian Gulf country in 2003, with an estimated 8.40
million bbl/d (49% of the total). Also, Iran had estimated net exports
of about 2.6 million bbl/d (15%), followed by the United Arab Emirates
(2.4 million bbl/d -- 14%), Kuwait (2.0 million bbl/d -- 12%), Iraq
(0.9 million bbl/d -- 9%), Qatar (0.9 million bbl/d -- 5%), and
Bahrain (0.01 million bbl/d -- 0.1%).
Offshore Persian Gulf Oil Development
Major offshore Persian Gulf oil fields include Khafji and Hout, both
of which are connected to Saudi Arabia's Safaniyah, the world's
largest offshore oilfield (with estimated reserves of 35 billion
barrels). Offshore production includes Arab Medium crude from the
Zuluf (over 500,000 bbl/d capacity) and Marjan (270,000 bbl/d
capacity) fields and Arab Heavy crude from the Safaniya field.
The Doroud 1&2, Salman, Abuzar, Foroozan, and Sirri fields comprised
the bulk of Iran's offshore output, all of which is exported. Iran
plans extensive development of existing offshore fields and hopes to
raise its offshore production capacity sharply to 1.1 million bbl/d
from about 675,000 bbl/d currently. In early October 2003, Iran re-
launched a tender for eight exploration blocks in the Persian Gulf
after receiving little interest from a January 2003 announcement. One
area considered to have potential is located near the Strait of
Hormuz. Another interesting area is offshore near Bushehr, where Iran
claimed in July 2003 to have discovered three fields with as much as
38 billion barrels of oil reserves.
Offshore Persian Gulf Natural Gas Development
Besides oil, the Persian Gulf region also is important because it
contains huge reserves (2,462 Tcf) of natural gas, with Iran, Qatar,
Saudi Arabia, and the United Arab Emirates holding the world's second,
third, fourth, and fifth-largest reserves (behind Russia),
respectively. This likely will become increasingly important in coming
years, as both domestic gas consumption and gas exports (by pipeline
and also by liquefied natural gas -- LNG -- tanker) increase.
Most of Saudi Arabia's currently proven natural gas reserves consist
of associated gas, including the offshore Safaniya and Zuluf field. A
huge (13-Tcf) natural gas field, called Dorra, is located offshore
near the Khafji oil field in the Saudi-Kuwaiti Neutral Zone and may be
developed by Japan's AOC. Dorra development is controversial, however,
because part of it is also claimed by Iran (which calls the field
Arash). The maritime border between Kuwait and Iran remain
undemarcated, but Saudi Arabia reached an agreement with Kuwait in
July 2000 to share Dorra equally. Currently, Iran is resisting any
moves by Kuwait and Saudi Arabia to develop the field on their own.
Iran and Kuwait have been discussing their offshore boundary since
2000.
Most of Qatar's natural gas proven reserves of 509 trillion cubic feet
(Tcf) are located in the offshore North Field, which is the largest
known non-associated natural gas field in the world. Smaller
associated gas reserves also are contained in the Id al-Shargi, Maydan
Mahzam, Bul Hanine, and al-Rayyan offshore oil fields. The Qatari
government believes that the country's economic future lies in
developing this vast natural gas potential. One proposed project will
tie Qatar into the United Arab Emirates (UAE) Dolphin Project, an
integrated natural gas pipeline grid for Qatar, UAE, and Oman, with a
possible subsea connection linking Oman to Pakistan.
Iran's largest non-associated natural gas field is South Pars,
geologically an extension of Qatar's North Field. Current estimates
are that South Pars contains 280 Tcf or more (some estimates go as
high as 500 Tcf) of natural gas, of which a large fraction will be
recoverable, and over 17 billion barrels of liquids. Development of
South Pars is Iran's largest energy project, already having attracted
around $15 billion in investment. Natural gas from South Pars largely
is slated to be shipped north via the planned 56-inch, 300-mile, $500
million, IGAT-3 pipeline, as well as planned IGAT-4 and IGAT-5 lines.
Gas also will be reinjected to boost oil output at the mature Agha
Jari oil field, and possibly the Ahwaz and Mansouri fields. Besides
condensate production and reinjection/enhanced oil recovery, South
Pars natural gas also is intended for export, by pipeline and also
possibly by liquefied natural gas (LNG) tanker. Sales from South Pars
could earn Iran as much as $11 billion per year over 30 years,
according to Iran's Oil Ministry.
OIL FLOWS
Strait of Hormuz
In 2003, the vast majority (about 90%) of oil exported from the
Persian Gulf transited by tanker through the Strait of Hormuz ,
located between Oman and Iran. The Strait consists of 2-mile wide
channels for inbound and outbound tanker traffic, as well as a 2-mile
wide buffer zone. Oil flows through the Strait of Hormuz account for
roughly two-fifths of all world traded oil, and closure of the Strait
of Hormuz would require use of longer alternate routes (if available)
at increased transportation costs. Such routes include the
approximately 5-million-bbl/d-capacity East-West Pipeline across Saudi
Arabia to the port of Yanbu, and the Abqaiq-Yanbu natural gas liquids
line across Saudi Arabia to the Red Sea. The 15.0-15.5 million bbl/d
or so of oil which transit the Strait of Hormuz goes both eastwards to
Asia (especially Japan, China, and India) and westwards (via the Suez
Canal, the Sumed pipeline, and around the Cape of Good Hope in South
Africa) to Western Europe and the United States.
Bab al-Mandab
Oil heading westwards by tanker from the Persian Gulf towards the Suez
Canal or Sumed pipeline must pass through the Bab al-Mandab. Located
between Djibouti and Eritrea in Africa, and Yemen on the Arabian
Peninsula, the Bab al-Mandab connects the Red Sea with the Gulf of
Aden and the Arabian Sea. Any closure of the Bab al-Mandab could keep
tankers from reaching the Suez Canal/Sumed Pipeline complex, diverting
them around the southern tip of Africa. This would add greatly to
transit time and cost, and effectively tie up spare tanker capacity.
In December 1995, Yemen fought a brief battle with Eritrea over
Greater Hanish Island, located just north of the Bab al-Mandab. The
Bab al-Mandab could be bypassed by utilizing the East-West oil
pipeline. However, southbound oil traffic would still be blocked. In
addition, closure of the Bab al-Mandab would effectively block non-oil
shipping from using the Suez Canal, except for limited trade within
the Red Sea region.
Suez/Sumed Complex
After passing through the Bab al-Mandab, oil en route from the Persian
Gulf to Europe must pass either through the Suez Canal or the Sumed
Pipeline complex in Egypt. Both of these routes connect the Red Sea
and Gulf of Suez with the Mediterranean Sea. Any closure of the Suez
Canal and/or Sumed Pipeline would divert tankers around the southern
tip of Africa (the Cape of Good Hope), adding greatly to transit time
and effectively tying up tanker capacity.
Other Export Routes
Small amounts of oil from the Persian Gulf were exported via routes
besides the Strait of Hormuz in 2003. This oil was exported mainly via
pipeline from Iraq's Kirkuk oil region to the Turkish port of Ceyhan
and by truck to Jordan.
OECD Oil Imports from the Persian Gulf
U.S. gross oil imports from the Persian Gulf rose during 2003 to 2.5
million bbl/d (almost all of which was crude), from 2.3 million bbl/d
in 2002. The vast majority of Persian Gulf oil imported by the United
States came from Saudi Arabia (71%), with significant amounts also
coming from Iraq (19%), Kuwait (9%), and small amounts (less than 1%
total) from Qatar and the United Arab Emirates. Iraqi oil exports to
the United States rose slightly in 2003, to 481,000 bbl/d, compared to
442,000 bbl/d in in 2002. Saudi exports rose from 1.55 million bbl/d
in 2002 to 1.77 million bbl/d in 2003. Overall, the Persian Gulf
accounted for about 22% of U.S. net oil imports, and 12% of U.S. oil
demand, in 2003.
Western Europe (defined as European countries belonging to the
Organization for Economic Cooperation and Development -- OECD)
averaged 2.6 million bbl/d of oil imports from the Persian Gulf during
2003, an increase of about 0.2 million bbl/d from the same period in
2002. The largest share of Persian Gulf oil exports to Western Europe
came from Saudi Arabia (52%), with significant amounts also coming
from Iran (33%), Iraq (7%), and Kuwait (6%).
Japan averaged 4.2 million bbl/d of net oil imports from the Persian
Gulf during 2003. Japan's dependence on the Persian Gulf for its oil
supplies increased sharply since the low point of 57% in 1988 to a
high of 78% in 2003. About 30% of Japan's Persian Gulf imports in 2003
came from Saudi Arabia, 29% from the United Arab Emirates, 17% from
Iran, 12% from Kuwait, 11% from Qatar, and around 1% from Bahrain and
Iraq combined. Japan's oil imports from the Persian Gulf as a
percentage of demand continued to rise to new highs, reaching 78% in
2003.
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