Two and a half months after the U.S.-Israeli strikes on Iran began, the Islamic Republic is moving closer to selectively controlling tanker flows through the Strait of Hormuz in a sign that access to the critical chokepoint may never be as unconditionally free as it was before February 28.<\/p>\n
The suggestion that Iran has a large degree of operational control over vessels attempting to pass through the Strait of Hormuz is being reinforced by reports that two of Iran\u2019s neighbors most severely affected by the de facto closure of the oil and LNG chokepoint, Iraq and Pakistan, have been negotiating and agreeing to case-by-case deals to help oil and gas cargoes move out of the Persian Gulf.<\/p>\n
OPEC\u2019s second-largest producer, Iraq, has seen its oil exports and revenues severely crippled<\/a>\u00a0due to the hostilities in the Middle East and the closed Strait of Hormuz, which is the only way to move Iraqi Basrah crude grades to international markets.<\/p>\n Iraq was one of the first Gulf producers to slash upstream production and now exports a small part of its crude via a pipeline to the Turkish Mediterranean coast. But its key export port at Basrah, which handled the bulk of exports prior to the war, is constrained due to the nearly unpassable Strait of Hormuz.<\/p>\n Since the war began, Iraq has shipped some cargoes eastward out of the Strait thanks to bilateral agreements with Iran\u2019s forces.<\/p>\n Most recently, Iraq and Iran agreed to a deal to secure the safe passage of two supertankers, each laden with around 2 million barrels of crude oil, through Hormuz. These very large crude carriers (VLCC) safely exited the Strait this past weekend. Related: Rising Jet Fuel and Ticket Prices Could Disrupt Summer Air Travel<\/a><\/p>\n Iraq is negotiating with Iran to secure safe passage for more tankers to ship Iraqi oil to markets through Hormuz, an official at the Iraqi Oil Ministry told Reuters<\/a> this week.<\/p>\n Iraq is one of OPEC\u2019s members most dependent on oil revenues, which make up about 95% of its budget income. For Baghdad, which can only move small volumes of crude through a pipeline to Turkey and the Mediterranean coast, an operational Strait of Hormuz is of critical importance for its economy.<\/p>\n So it\u2019s no surprise that Iraq is negotiating with Iran about tanker passages through the Strait.<\/p>\n Separately, one of Iran\u2019s neighbors to the east, Pakistan \u2013 which has been mediating U.S.-Iran talks in recent weeks \u2013 has been negotiating to have Qatari LNG moved out of the Persian Gulf for the first time since the war began.<\/p>\n Pakistan has relied on Qatar\u2019s term LNG supply for years, but the war in the Middle East and the closure of the Strait of Hormuz have led to the shutdown of Qatari LNG production and exports.<\/p>\n Without Qatar\u2019s LNG, Pakistan has been reeling from an intensifying energy crisis<\/a> with power outages and fuel rationing.<\/p>\n Thanks to a bilateral Pakistan-Iran agreement, two vessels carrying Qatari LNG are now en route to Pakistan after successfully passing through<\/a> the Strait of Hormuz in recent days.<\/p>\n Neither Pakistan nor Iraq has made direct payments to Iran or Iran\u2019s Islamic Revolutionary Guard Corps (IRGC) to secure passage, according to Reuters\u2019 sources.<\/p>\n With U.S.-Iran talks in a stalemate, \u201cIran is still seemingly willing to accept something akin to the 2015 nuclear agreement, with the added bonus of Strait of Hormuz operator rights,\u201d Helima Croft, Head of Global Commodity Strategy and MENA Research at RBC Capital Markets, wrote in a\u00a0note<\/a>\u00a0last week.<\/p>\n This was before U.S. President Donald Trump flatly rejected the Iranian response to the U.S-proposed framework agreement as \u201cgarbage.\u201d<\/p>\n \u201cCommercial shipping through Hormuz increasingly appears to be operating outside traditional visibility frameworks,\u201d maritime intelligence firm Windward said in an analysis<\/a> earlier this week.<\/p>\n By Tsvetana Paraskova for Oilprice.com<\/p>\n