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The stat has been raised frequently of late that 20% of the world's oil floes through the Straight. My understanding is that its 20% of total oil, but that aro

The stat has been raised frequently of late that 20% of the world's oil floes through the Straight. My understanding is that its 20% of total oil, but that around half of all oil production is used domestically where it is produced and never enters global markets. Unless I missed something when fact checking that, Iran is capable cutting off 40% of all purchasable oil.

perfmode 7mo ago
75% of Japan’s oil. 60% of India’s oil. 40% of China’s oil. is what i’ve heard.
AnthonyMouse 7mo ago
There are several issues with that math. To begin with, it assumes that oil currently used domestically isn't on the market, but what do you expect oil producers to do if foreign buyers make a higher bid for the "domestic" oil? Or to put it another way, there's a reason the market price goes up by essentially the same amount in the oil-producing countries as everywhere else. Then it assumes that oil that currently goes through the Strait has to. Oil can also leave the middle east by going west, e.g. to Europe. You might think that doesn't help India or China, but it's still a global commodity with a global price. India and China could then buy oil from Russia, Kazakhstan or whatever other country that Europe had been buying from and now isn't because they're getting more oil from the middle east. Does this still raise the price? Yes it does, because there is a reason they were doing it the other way previously -- doing something else will have higher transportation costs. But does it mean 20% of global oil supplies will be cut off? Not really, it mostly means you'll have to increase the average distance it gets transported and pay a few percent more to cover the higher transportation costs.
- roryirvine 7mo ago
  Much of that domestic consumption is used in the process of extraction and refining, so actually isn't on the market as such. My understanding is that GP is correct to say that the 20% figure rather understates the potential impact of a prolonged shutdown of the Strait. Pipeline capacity to the west is pretty limited. The connection via Syria is affected by the war aftermath, the Iraq/Turkey route is already at capacity, and the Saudi connection to the Red Sea is vulnerable to resumption of Houthi attacks. There's some connectivity via Oman, but that's largely natural gas rather than oil.
  - _heimdall 7mo ago
    The type of oil produced also varies by region. Russia mostly ships heavy and sour crude oil while much of the middle east produces light, sweet crude. I don't know enough about European refineries specifically, but even if you could entirely redirect oil out of the middle east (it wouldn't be that simple), regional refiners may not be setup to process that different type of crude at a similar capacity.
    - roryirvine 7mo ago
      Yeah, most refineries in western europe were set up for Brent crude from the North Sea, which is actually somewhat lighter and sweeter than Arab Light or Dubai crude. Russia does produce some lighter oil, but the usual Ural / Volga-sourced stuff couldn't be substituted without additional hydrotreatment.
  - AnthonyMouse 7mo ago
    > Much of that domestic consumption is used in the process of extraction and refining, so actually isn't on the market as such. My understanding is that GP is correct to say that the 20% figure rather understates the potential impact of a prolonged shutdown of the Strait. The original claim was that all of the "domestic" oil was off the market. It's also not clear why oil used for oil production requires special treatment. To the extent that it's used for transportation it's susceptible to substitution with electric vehicles like anything else. To the extent that it's used for heat in refineries it could likewise be substituted with non-petroleum heat sources when oil is at a premium. More than that, many of those costs also apply to unrefined oil currently going through the Strait, so that proportion is on both sides of the ledger anyway. And to the extent that it can't be substituted, it's just a fairly arbitrary subclass of the broader category of consumers with inelastic demand, which implies that oil-producing countries might have a higher percentage of inelastic demand (even then assuming that oil production has more inelastic demand for oil than other things), but by significantly less than the proportion used in oil production, because it's just being averaged in to the broader category of all short-term inelastic global oil consumption. > Pipeline capacity to the west is pretty limited. The connection via Syria is affected by the war aftermath, the Iraq/Turkey route is already at capacity, and the Saudi connection to the Red Sea is vulnerable to resumption of Houthi attacks. There's some connectivity via Oman, but that's largely natural gas rather than oil. Pipelines are the most efficient way to transport it, not the only way. You import some tanker trucks and drivers and you can transport as much as you want, but it'll cost more. We're not even talking about thousands of miles, bypassing the Strait of Hormuz via a land path in the UAE is about an hour. And the Houthis are a problem if you're trying to get to Asia, not Europe. The Saudi pipeline goes to the Red Sea well north of Yemen and from there has a sea path to Europe via the Suez canal. On top of that, the Iranian military is already in a full conflict with the US. Whereas if the US parks an aircraft carrier with satellite support in the narrow part of the Red Sea ready to rain down fire on any Houthis that attack an oil tanker, but is otherwise going to leave them alone, how many do they have who are inclined to choose certain death to attack a ship most likely destined for Asia out of "solidarity"?
- _heimdall 7mo ago
  I'd recommend this podcast episode[1] if you're interested. Nate Hagan's was originally in finance and has spent the last couple decades researching and discussing wide boundary risks. This episode goes deeper into some of the ripple effects of this oil being blocked in the Straight, it isn't as simple as running it through a pipeline and shipping it differently as though you're detouring around a car accident. [1] https://www.thegreatsimplification.com/frankly-original/wide-boundary-news-3-10-26 https://www.thegreatsimplification.com/frankly-original/wide...

perfmode 7mo ago

75% of Japan’s oil. 60% of India’s oil. 40% of China’s oil. is what i’ve heard.

AnthonyMouse 7mo ago

There are several issues with that math. To begin with, it assumes that oil currently used domestically isn't on the market, but what do you expect oil producers to do if foreign buyers make a higher bid for the "domestic" oil? Or to put it another way, there's a reason the market price goes up by essentially the same amount in the oil-producing countries as everywhere else. Then it assumes that oil that currently goes through the Strait has to. Oil can also leave the middle east by going west, e.g. to Europe. You might think that doesn't help India or China, but it's still a global commodity with a global price. India and China could then buy oil from Russia, Kazakhstan or whatever other country that Europe had been buying from and now isn't because they're getting more oil from the middle east. Does this still raise the price? Yes it does, because there is a reason they were doing it the other way previously -- doing something else will have higher transportation costs. But does it mean 20% of global oil supplies will be cut off? Not really, it mostly means you'll have to increase the average distance it gets transported and pay a few percent more to cover the higher transportation costs.

roryirvine 7mo ago
Much of that domestic consumption is used in the process of extraction and refining, so actually isn't on the market as such. My understanding is that GP is correct to say that the 20% figure rather understates the potential impact of a prolonged shutdown of the Strait. Pipeline capacity to the west is pretty limited. The connection via Syria is affected by the war aftermath, the Iraq/Turkey route is already at capacity, and the Saudi connection to the Red Sea is vulnerable to resumption of Houthi attacks. There's some connectivity via Oman, but that's largely natural gas rather than oil.
- _heimdall 7mo ago
  The type of oil produced also varies by region. Russia mostly ships heavy and sour crude oil while much of the middle east produces light, sweet crude. I don't know enough about European refineries specifically, but even if you could entirely redirect oil out of the middle east (it wouldn't be that simple), regional refiners may not be setup to process that different type of crude at a similar capacity.
  - roryirvine 7mo ago
    Yeah, most refineries in western europe were set up for Brent crude from the North Sea, which is actually somewhat lighter and sweeter than Arab Light or Dubai crude. Russia does produce some lighter oil, but the usual Ural / Volga-sourced stuff couldn't be substituted without additional hydrotreatment.
- AnthonyMouse 7mo ago
  > Much of that domestic consumption is used in the process of extraction and refining, so actually isn't on the market as such. My understanding is that GP is correct to say that the 20% figure rather understates the potential impact of a prolonged shutdown of the Strait. The original claim was that all of the "domestic" oil was off the market. It's also not clear why oil used for oil production requires special treatment. To the extent that it's used for transportation it's susceptible to substitution with electric vehicles like anything else. To the extent that it's used for heat in refineries it could likewise be substituted with non-petroleum heat sources when oil is at a premium. More than that, many of those costs also apply to unrefined oil currently going through the Strait, so that proportion is on both sides of the ledger anyway. And to the extent that it can't be substituted, it's just a fairly arbitrary subclass of the broader category of consumers with inelastic demand, which implies that oil-producing countries might have a higher percentage of inelastic demand (even then assuming that oil production has more inelastic demand for oil than other things), but by significantly less than the proportion used in oil production, because it's just being averaged in to the broader category of all short-term inelastic global oil consumption. > Pipeline capacity to the west is pretty limited. The connection via Syria is affected by the war aftermath, the Iraq/Turkey route is already at capacity, and the Saudi connection to the Red Sea is vulnerable to resumption of Houthi attacks. There's some connectivity via Oman, but that's largely natural gas rather than oil. Pipelines are the most efficient way to transport it, not the only way. You import some tanker trucks and drivers and you can transport as much as you want, but it'll cost more. We're not even talking about thousands of miles, bypassing the Strait of Hormuz via a land path in the UAE is about an hour. And the Houthis are a problem if you're trying to get to Asia, not Europe. The Saudi pipeline goes to the Red Sea well north of Yemen and from there has a sea path to Europe via the Suez canal. On top of that, the Iranian military is already in a full conflict with the US. Whereas if the US parks an aircraft carrier with satellite support in the narrow part of the Red Sea ready to rain down fire on any Houthis that attack an oil tanker, but is otherwise going to leave them alone, how many do they have who are inclined to choose certain death to attack a ship most likely destined for Asia out of "solidarity"?
_heimdall 7mo ago
I'd recommend this podcast episode[1] if you're interested. Nate Hagan's was originally in finance and has spent the last couple decades researching and discussing wide boundary risks. This episode goes deeper into some of the ripple effects of this oil being blocked in the Straight, it isn't as simple as running it through a pipeline and shipping it differently as though you're detouring around a car accident. [1] https://www.thegreatsimplification.com/frankly-original/wide-boundary-news-3-10-26 https://www.thegreatsimplification.com/frankly-original/wide...