May 24, 2006 (STAR) DEMAND AND SUPPLY By Boo Chanco - I wonder if our Energy officials know about the Strait of Hormuz. During the energy crisis years of the 80s, this vital waterway in the Persian Gulf was our worst nightmare. We were deathly scared that a flare up in the Middle East would result in this waterway being effectively blocked, and with it, the bulk of our oil supplies. And we planned accordingly… from setting up strategic reserves in country and diversifying our sources of oil to include out of the way Mexico.

Today, if our energy officials haven’t given the Strait of Hormuz some thought, I strongly suggest that they do. Iran is so cocky about its nuclear ambitions despite the overwhelming pressure exerted by the West and the United Nations because they have this ability to checkmate everybody by using the Strait of Hormuz as their weapon to get even with, what is in their minds, a hostile world.

Iran controls half of the Strait of Hormuz, the narrow 30-mile-wide, four-mile corridor through which close to 17 million barrels of Middle Eastern oil passes every day; an artery that supplies almost 20 percent of the world’s 1,000-barrel-per-second oil addiction. Every single tanker leaving the Persian Gulf must pass this single most vital "choke point" on the planet.

How vital is this Strait? Just think of it this way – the price of oil reached record levels merely on a hint of trouble with Iran. Think what the scenario could be if trouble actually erupts, as in an American invasion or an Israeli attack on Iran… and Iran retaliates by blocking the Strait.

I googled "Hormuz" and I found two quotes from Iranian officials that underscore the fact that they know how vital Hormuz is and that they will not hesitate to use it if they are attacked. The first quote is from the Supreme Commander of Iran’s Islamic Revolutionary Guard, Major General Yahya Rahim Safavi. He called the Strait of Hormuz the "economic lifeline" of the West and said Iran could use it as a vehicle for wreaking economic havoc.

The second quote is from a past president and was made during the Iran-Iraq war. Iran’s President at that time, Ali Rafsanjani said: "We would close the Strait of Hormuz if the Gulf became unusable for us… we will make the Gulf unusable for others."

It should be easy enough for the Iranians to block the Strait by mining it or by disabling a giant oil tanker or tankers in its narrowest point of passage. It is inevitable that as soon as the West threatens Iran with military action, Iran can threaten the Strait of Hormuz in return, and that will drive oil prices into the stratosphere.

One article I googled insists a conflict with Iran is both inevitable and potentially very dangerous, reason enough for countries like ours to make contingency plans. This analyst thinks an American strike will have to happen before Iran’s first nuclear plant, a 1,000-megawatt (MW) nuclear reactor in southwestern Iran starts up. That’s because an attack after it goes on line could be a major radioactive disaster in the region and the Yanks won’t risk that.

So, this analyst thinks any attack on Iran is likely to occur before that facility goes on line. "And based on the latest public information, that’s about seven months from now." The goal of a US attack is to set the Iranians back a decade or more. Iran for its part, announced it would attack Israel in retaliation to a US strike.

If war were to break out in this region, oil would certainly be used as a weapon. Any military action threatening Iran de facto threatens this Strait and all that passes through it. I think over 90 percent of our crude oil imports now come from the Middle East and must pass the Strait of Hormuz to get here. If war breaks out and Iran blocks the Strait, we would have at most 40 to 60 days inventory in country to tide us over. Not even the guarantee of supply given by the Saudis to Ate Glue is of any use because the Strait is blocked.

Hopefully, any war in the Middle East would be short, like the Yom Kippur War and the first Iraq war. But short wars have gone out of style in that region with the Iraq War of George Bush II. In a situation like this, we won’t even talk about prices that would surely skyrocket. Our main concern will be where to source enough supply at any price that would keep vital services going even if everyone else will have to keep their cars home and suffer power blackouts. Hopefully, we have an iron-clad guarantee from Malaysia, Brunei and Indonesia, our AsEan partners, to give us priority to their supplies.

During the 80s, we bought a number of old oil tankers and used them as floating storage. We maintained a strategic supply of up to 180 days in country. Of course that was expensive in terms of carrying cost, but it enabled us to sleep nights in the thought that we would have a little more breathing room if hell breaks out in the Middle East and Hormuz is blocked. Our Oil Special Fund paid for that strategic reserve.

Now, our situation is really precarious. Only Shell and Petron keep limited amounts of crude oil in its storage tanks in their refineries. The crude tanks of Caltex are now presumably empty after they closed down their Batangas refinery. The oil companies cannot be expected to carry reserves beyond what is commercially justifiable by their market. The cost of a strategic reserve is properly carried by government, as is the case in the United States.

I am not being panicky but I wonder if our government has even thought of a contingency plan that takes into account a Hormuz blockage arising from a flare-up of hostilities between Iran and the West. In fact, the National Security Council should be convened to consider any such plans. If we have to put an impost similar to the Oil Special Fund that would take care of the cost of storing a little more than the usual inventories of crude and product, I think it ought to be considered.

Of course our energy officials can say that I am being too pessimistic and such a dire turn of events isn’t likely to happen. Well, I do hope they are right. But then again, what if I am right?

Mall of Asia

The wife and I decided to visit the Mall of Asia on its opening day. I have to say it is nothing short of impressive. I have been to a lot of malls in many countries and this is definitely among the best, if not the best.

It is not often that malls are built to look like architectural show pieces. Mostly, malls look like boxes from the outside and the inside is pretty much standard too. The Mall of Asia is a looker, inside and out.

The other good thing about the Mall is that it has something for all segments of the market. It has the upscale brands and good old reliable SM department store. All you need is the stamina and the wallet to have a good long day there.

We decided to try the fast food section and ended up with a good meal for the two of us for just a little over P300 in a, where else, an Ilokano food outlet. Had the usual pinakbet, bagnet, Vigan longganiza and a new dish of eggplant and egg whose name is rather obscene… pouki pouki. I must say however, that the pinakbet and Vigan longganiza served by Romy Reyes, a Chavit Singson cousin, is still tops.

The crowd was heavy last Sunday. Indeed, if Henry Sy builds it, they will come. Now, Metro Manila has one new place to go to cool off and forget the reality outside. And the good thing about the Mall of Asia is its location. From the restaurant row, you can have a clear view of Manila Bay, without smelling it, as in the Baywalk and the Cultural Center area. It is a good place to spend a lazy Sunday afternoon.

With most people at the Mall of Asia, it was no wonder the MegaMall was a little less crowded last Saturday evening! I was even able to park easily. Or maybe it was because the SM Cinemas were not showing The Da Vinci Code.

Oh well… Henry Sy has really gone to the moon and back, so to speak, compared to the old Carriedo store I remember my father taking me to as a kid in late 50s. Actually, one could think of the SM group as a good proxy for our consumer-led economy. So long as the people are shopping enough for SM to build more malls, things couldn’t be all that bad.


Chief News Editor: Sol Jose Vanzi

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