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UAE, Saudi less exposed to a Hormuz closure.

Summary: These routes provide a degree of protection against the Strait's potential closure.

The potential blockage of the Straits of Hormuz by Iran in the ongoing geopolitical tension with the US and other Gulf countries will have lesser impact on the UAE and Saudi Arabia, global ratings agency Moody's Investors Service said on Monday.

It noted that Saudi Arabia's East-West pipeline system transports crude from the oil-rich Eastern province to the port of Yanbu on the Red Sea and the UAE's Habshan-Fujairah pipeline bypasses the Strait of Hormuz by connecting the oil fields in Abu Dhabi to the export terminal in Fujairah.

Hence, these routes provide a degree of protection against the Strait's potential closure.

The UAE's pipeline has capacity to transport 1.8 million barrels per day, covering up to 75 per cent of the country's oil exports. The pipeline in Saudi Arabia has capacity to transport five million barrels a day, covering around two-thirds of its crude oil exports.

Tension in the region has escalated in the last few weeks following attacks on oil tankers, which the US has blamed on Tehran. Industry estimates show that around 18 million barrels of oil or 20 per cent of world demand, travels through the Strait of Hormuz. Industry analysts say that tanker attacks could have a lasting effect on the oil prices.

Similarly, Moody's said, Oman's major ports are located outside of the Gulf, so its exports are likely be unaffected. But, in contrast, Kuwait, Bahrain and Iraq lack any alternative oil export routes and would, therefore, be most exposed to disrupted traffic through the Strait of Hormuz, as would Qatar, which ships all of its liquefied natural gas via the Strait.

"The Strait's closure would disrupt tanker traffic and weigh on the foreign exchange and fiscal revenue of those sovereigns most reliant on the Strait for transporting oil and gas exports. Kuwait, Qatar, Iraq, Bahrain and, to a lesser extent, Saudi Arabia and the UAE, a credit negative," Alexander Perjessy, senior analyst at Moody's Investors Service said in a note on Monday.

The global ratings agency sees a very low probability of a military confrontation in the region.

"However, a sustained disruption to tanker traffic through the Strait of Hormuz would be significantly negative for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the UAE and Iraq's fiscal and external positions because oil and gas exports account for more than half of their exports (except for the UAE) and for most of their government revenue," the agency said.

But the UAE, Kuwait, and Saudi Arabia have ample foreign-currency and government asset cushions to tide them over from a temporary disruption of oil exports through the Strait, it added.

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Publication:Khaleej Times (Dubai, United Arab Emirates)
Geographic Code:7UNIT
Date:Jun 17, 2019
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