A bit more from the times

http://business.timesonline.co.uk/tol/business/markets/the_gulf/article4710599.ece

September 9, 2008
Dubai plans $200bn canal to bypass Strait of Hormuz
David Robertson

Dubai is studying plans to build a $200 billion (£114 billion) mega-canal that would allow oil tankers to bypass the Strait of Hormuz. The Gulf emirate is understood to be considering the idea as a means of reducing Iran’s influence on the flow of oil from the region.

About 17 million barrels of oil a day are transported through the strait, equivalent to 40 per cent of the world’s traded oil.

However, the proposed canal project would be fraught with difficulty. Oil tankers weighing more than 300,000 tonnes would need a route through the mountainous region between Dubai and its Indian Ocean coast.

“Many studies on this have been presented, but nothing is solid,” a senior official of the Dubai Government told Dow Jones yesterday

Iran has hinted repeatedly that, if threatened, it would target commercial vessels in the strait. The navigable tanker lanes are only six miles wide and any disruption could severely limit oil exports from the Gulf.

Engineers are understood to have presented the plans for a 112-mile canal to the Dubai Government. It would link the Gulf coast with the port of Fujairah on the Indian Ocean coast, crossing the Hajar Mountains with a network of enormous locks. The massive cost and complexity of the project is thought to have stalled a decision on the canal, but it could be a popular initiative with other Gulf states.

Iran’s location on the northern coast of the Strait of Hormuz effectively allows it to control the 90 per cent of Gulf oil that is exported by sea. Countries such as Saudi Arabia, Kuwait and Iraq are eager to find an alternative and could be persuaded to contribute to the project.

Mustafa Alani, of the Dubai-based think-tank Gulf Research Center, said: “Iran has clearly stipulated its intention to close the Strait of Hormuz in case of a military conflict in the region.”

Abu Dhabi is building a pipeline to Fujairah so its oil can avoid Hormuz. It will carry about 1.5 million barrels a day, but will not have the capacity to transport oil from Saudi Arabia or other producers.

http://business.timesonline.co.uk/tol/business/columnists/article4710766.ece

September 9, 2008
Real value in pricey Gulf canal project

David Wighton: Business editor’s commentary

Dubai excels at projects that require more money than common sense (the world’s largest indoor snow resort, for example) but perhaps the ultimate swaggering demonstration of wealth is the proposal to build a canal across the emirate’s mountainous hinterland.

The project to link the Gulf with the Indian Ocean would cost more than $200 billion (£114 billion) but reduce journey distances by only about 100 miles.

The Suez and Panama Canals were built so ships did not have to circumnavigate entire continents. The Dubai to Fujairah channel would merely cut off the tip of Arabia.

The canal would, however, allow ships to avoid the Strait of Hormuz and avoid Iran’s influence over that treacherous stretch of water.

More than 90 per cent of the Gulf’s oil, which accounts for 40 per cent of the world’s traded supplies, must be transported through the Strait every day and Iran has made clear it will block the channel if threatened.

This would obviously be bad for oil consumers but it could turn ugly for Gulf producers so a $200 billion insurance policy might look attractive to states such as Saudi Arabia, Kuwait and Iraq.

As for the staggering sum involved, $200 billion is only what the United States is willing to pay to bail out its sickly mortgage giants, Fannie Mae and Freddie Mac.

Given the need to secure oil supplies from the Gulf, this canal could turn out to be just as economically important as supporting the US mortgage market. Perhaps we should all chip in.