Connecting the Dots Between Oil Prices, Iran & China, the Strait of Hormuz, and U.S. Electric Cars
Located between Oman and Iran, the Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. Hormuz is the world's most important oil choke-point due to its daily oil flow of almost 17 million barrels in 2011, up from between 15.5-16.0 million bbl/d in 2009-2010. Flows through the Strait in 2011 were roughly 35 percent of all seaborne traded oil, or almost 20 percent of oil traded worldwide. Image and caption courtesy USEIA.
Start your motors gents - a choke point lies straight ahead.
China really doesn't want US-led Iranian sanctions to be implemented because those sanctions would choke off a key supply of China's crude oil (85% of the oil passing the Hormuz choke-point, just South of Iran, is headed for Asia). Brookings offers a clear explanation.
Yet one uncertainty still looms large: China's commitment to such policies. Driven by economic interests, as well as sympathy for Iran's grievances, China is the only major player still active in the Iranian oil patch. Whereas firms from most other countries have retreated due to international pressure and Iran's unfavorable business climate, China and its companies adhere only to the letter of Resolution 1929, which contains no explicit restrictions on energy investment or trade. China has thus emerged as the linchpin of the international sanctions regime against Iran and, by extension, of the effort to forestall Iran from acquiring a nuclear capability.I've heard the beltway pundits declare that Iran's threat to retaliate by closing off the worlds largest oil choke-point is typical bravado and it won't happen because Iran needs the money. On the other hand, a partial choke would elevate world oil prices, maintaining an Iranian income stream, and putting the fuel price squeeze on stateside SUV drivers.
Black Swan prospects.
If that were to happen right before the US presidential election of November 2012, can you imagine how it would rile the neocons and shift election debates away from job growth? How military expenditures would ramp up again, derailing the budget cutting rhetoric?
Wall Street already sees an opportunity to exploit the possibility, as this sub-head from MSN Money reporting indicates: After enjoying months of cheaper fuel, Americans are about to experience more pain at the pump because of crude oil speculation and market manipulation.
The one good thing that could potentially grow out of a smallish Hormuz pinch would be greater US consumer interest in EV's and hybrids. That interest would accelerate arrival of a more sustainable US auto fleet, even if the EV market share grew to only 12%, as appears to be the current peak market potential, per this Peak Oil blog citation:
A recent USA Today/Gallup poll in the United States suggested that 57% of Americans would not consider buying an electric vehicle no matter what the price. Indeed, only 12% would consider an EV if gas prices rose above US$5 a gallon.