News from the Persian Gulf war zone today is that Iraq has shut down some oil wells, following the kead of Kuwait, Qatar, Bahrain, the Emirates and Saudi Arabia. Qatar has also shut down is gas wells and the process ‘trains’ needed to liquefy natural gas.
This is bad news for Europe particularly, and for the rest of the free world and is, as we reported yesterday, due to the virtual closure of the Strait of Hormuz and because of potential missile and drone attacks on the vulnerable and highly exposed production installations.
While oil and LPG prices have increased on all global markets, commodity traders have not yet recognized the length and severity of the supply crunch these shut downs will cause. Prices, currently in the high $90s per barrel, will need to get much higher ($150+/bl) to cause an equivalent demand destruction.
Even if the war on Iran stopped tomorrow and Strait could be reopened immediately it would take many weeks until the flow of supplies returned to normal levels.
Oil wells, like electricity generating stations, once shut down, cannot be brpught back oline at the flick of a switch. The bore of an unused oil well may close up, sediments may block the oil flow, valves start to fail. It means that drilling rigs will need to be setup at each of the wells a task involving several days work even if all materials are readily available, before the oil starts to flow. There are thousands of wells that have been shut down.
Qatar’s liquefaction of natural gas is an even bigger problem as sactions over Rssia's war with Ukraine have cut off supplies from that source making exports from the Gulf even more vital and the process to create Liquefied Petroleum Gas is quite complex:
The first step on the onshore facilities is the separation of condensate from gas. The separated condensate is stabilised and sent to storage to await export. The natural gas then flows to the liquefaction trains for processing into LNG. During the first phase of this process, sulphur compounds, carbon dioxide, and water are removed in stages. The gas is then chilled using propane and mixed refrigeration processes.
The heavy hydrocarbons are separated out and fractionated into liquefied petroleum gas (LPG) and plant condensate. The cryogenic main heat exchanger in each train then cools the gas to approximately – 150 °C, liquefying it in the process. Finally, as the pressure is reduced to almost zero, the temperature decreases to – 162 °C, nitrogen is removed and LNG is transferred to one of the storage tanks prior to being loaded into a LNG vessel.
When a liquefaction system shuts down all the product in it will have to be removed. The whole cryogenic chain, once stopped, will warm up and will need to be cooled down again to its very low working temperatures. The metal structures involved do not react well, to say it mildly, to frequent changes in temperature. Failures will occur. Repairs will be needed.
It will take at least two months to revive the Qatari process trains. This of course only after the war has ended. Some 20% of the global LPG supply will thus be unavailable for a lengthy period of time.
The big mouths and bigger egos on the American side of the conflict have not only let the cat out of the bag but have painted a very complete picture for Gulf Control Councol (GCC) rulers to see a long war is completely against their interest. Their ambassadors got dressed down very well by Lavrov with what some have described as tough love. Despite that, GCC rulers now see Russia as more powerful than the US Empire in the Gulf region and with Russia comes China.
The big dilemma for GCC rulers is their investment
portfolio in the west which has the very real possibility of becoming a
total loss if war spreads beyond the gulf region and becomes global conflict. Likewise are US corporate assets within the GCC that Iran
aims to eliminate as part of its goal to eject all US & European related assets
from the region.
Shi’a leaders have now issued fatwas calling for jihad in support of Iran, a move that coulfd have a major impact on events in Iraq. Hezbollah has been performing very well in the eastern Mediterranean so far.
Iran’s 91 million people are spread out across the nation aside from the 10 million or so that live in the Tehran metro region, meaning the US - Israeli war effort needs to target an area the size of Europe, while Occupied Palestine houses about 7.5 million Zionists 75% of whom are concentrated in Tel Aviv and Haifa metro areas making it far easier for Iran to concentrate its attacks.
While this is going on economic damage continues to mount up, particularly amongst four key US East Asian allies–South Korea, Japan, Taiwan, and Philippines, all of which are dependent on energy imported from the Persian Gulf. That factor along with EU dependence brings the possibility of shifting the geopolitical balance away from the USA Empire since Trump has made clear he doesn’t care if the world enters a massive depression caused by prolongation of the war.
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