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Wednesday, April 1, 2015

oil tankers move through Bab el-Mandeb, Arabic for “Gate of Tears”

In local market, if you are to buy a kg of brinjals and are surprised with their latest price, the reasoning could be a ‘lorry strike’ or somethingelse happening in a far-off place.  Some would comment that ‘Iran-Iraq’ war would push up prices in a local market in Chennai !!  …  In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. The name of the effect, coined by Edward Lorenz, is derived from the metaphorical example of the details of a hurricane being influenced by minor perturbations such as the flapping of the wings of a distant butterfly several weeks earlier.

In reality, at Singapore,  Gold dropped for a second straight session on Monday, slipping further from a three-week high, after Federal Reserve Chair Janet Yellen signalled that the U.S. central bank may be on course to raise interest rates later this year. Not so, in India, as Gold prices climbed to over three-week high to close at Rs 27,100 per 10 grams at the bullion market during the week amid a firming trend in overseas markets as the Middle-East unrest boosted demand for the metal as a safe-haven.   Bullion merchants attributed the rise in gold prices to a firming trend in global markets where it crossed the USD 1,200 an ounce level on concerns of geo-political tensions as Saudi Arabia and its allies began air strikes in Yemen, raising the appeal of precious metals.

Yemen  is an Arab country in Southwest Asia, in Arabian Peninsula. It is bordered by Saudi Arabia, Oman, Red Sea, Gulf of Aden and Arabian Sea.  The meltdown in Yemen is pushing the Middle East dangerously closer to the wider regional conflagration many long have feared would arise from the chaos unleashed by the Arab Spring revolts.  What began as a peaceful struggle to unseat a Yemeni strongman four years ago and then mutated into civil strife now risks spiralling into a full-blown war between regional rivals Saudi Arabia and Iran over a country that lies at the choke point of one of the world’s major oil supply routes. Saudi Arabian air strikes against the Iran-backed Houthi rebels in Yemen have been touted as the latest escalation in a regional proxy war between Saudi Arabia and Iran. As the two countries continue to train, finance and equip rival militants in the Syrian civil war, and to support opposing sides in Iraq, Bahrain, Lebanon and Yemen, fears have been raised about where this now-militarised regional rivalry could go.

The Bab-el-Mandeb  is a strait located between Yemen on the Arabian Peninsula, and Djibouti and Eritrea in the Horn of Africa. It connects the Red Sea to the Gulf of Aden.  "Bab-el-Mandeb" means "Gateway of anguish", or "Gateway of tears"; the strait derives its name from the dangers attending its navigation, or, according to an Arab legend, from the numbers who were drowned by the earthquake which separated Asia and Africa.  It is the strategic link between the Indian Ocean and the Mediterranean Sea, via the Red Sea and the Suez Canal.  Millions of  barrels of oil passes through the strait every day.

Kuwaiti oil tankers have had no problem passing through a narrow strait between war-torn Yemen and Djibouti, one of seven so-called choke points in the worldwide delivery of oil, the state-owned Kuwait Petroleum Corp. (KPC) said Sunday. Yemen’s strategic location for the movement of crude from the Middle East to Europe and the U.S. has raised concerns that the unrest in Yemen could endanger tankers passing through the strait.  The U.S. Energy Information Administration estimates that 3.8 million barrels of oil passed through the strait every day in 2013, making it the fourth-largest choke point after the Strait of Hormuz, between the United Arab Emirates and Iran; the Strait of Malacca, between Malaysia and Indonesia; and Egypt’s Suez Canal between the Red Sea and the Mediterranean.

The conflict in Yemen spilling in to the narrow choke point could potentially disturb nearly 4 million barrels of oil shipped daily to Europe, the United States and Asia and  could end up driving up  insurance costs. Oil prices rose as much as 6% last week after neighbouring Saudi Arabia and its allies launched air strikes on Yemen that targetted Iran-backed Houthi rebels fighting to oust Yemen’s president.  Shipping and insurance sources say disruptions to shipping would raise costs. Yemen shut its major seaports last week  due to the fighting. “If a ship is attacked or damaged that would lead to an immediate market reaction. No one at the moment wants to be first to do anything. But everyone is watching this minute by minute,” a top ship insurer said.

Any closure of Bab el-Mandeb, Arabic for “Gate of Tears” due to its precarious navigation, would close off the Suez Canal and the SUMED pipeline that connects to the Mediterranean and supplies oil to southern Europe.  Yemen was already considered a higher risk area than Syria and Iraq, shippers said. Not a great news for the International business community, though nothing has occurred.

With regards – S. Sampathkumar

30th Mar 2015.

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