UAE oil storage facility likely game changer in Gulf-Iran showdown
ABU DHABI - The United Arab Emirates and South Korea announced the start of a megaproject to build the largest crude oil storage facility in the world at the emirate of Fujairah, overlooking the Arabian Sea.
The project will free oil exports in the region of the blackmail that Iran has been practising in the Strait of Hormuz for political goals.
Oil experts said building a world-class storage facility with a capacity of 42 million barrels of crude oil would offer a serious alternative that could maintain crude oil supplies and stabilise world markets should Iran, in the context of its policy of smuggling, threaten international shipping in the Strait of Hormuz.
The facility, which is to be built underground, would be safe from military attack. This would deprive Iranian threats in that regard of any credibility.
Beside pre-empting Iranian threats, conditions created by the facility would make it easier for the United States to ratchet up sanctions regarding Iranian oil exports, even though the facility is essentially part of the United Arab Emirates’ strategic options for becoming an international hub for oil exports.
The giant project reveals another facet of the choice made by the Gulf countries, especially Saudi Arabia and the United Arab Emirates, to diversify their economic and trade partnerships by targeting emerging economic powers in South-east Asia and building partnerships in strategic areas.
This strategic orientation was also reflected by the recent Asian tours of Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan and Saudi Crown Prince Mohammed bin Salman bin Abdulaziz.
The facility is expected to strengthen the UAE’s position as a reliable supplier of crude oil, especially because some of the world’s largest oil companies, such as Saudi Aramco, will be using the new facility for storage.
Fujairah Port Director Musa Murad said the project would enhance the UAE’s position on the global map because the port enjoys a unique geographic location at the heart of international transport and trade lines and is one of the most strategically located ports outside the Strait of Hormuz.
Located on the east coast of the United Arab Emirates, Fujairah is one of the two major ports in the region, along with the Omani port of Sohar. Fujairah port is a busy point for refuelling oil tankers.
Sharif Habib al-Awadhi, director-general of Fujairah Free Zone, said the new UAE-South Korean project will create “opportunities for new alliances” and will be a “big leap” at the level of global markets.
The project has many strategic dimensions. It would be the world’s largest underground oil storage facility. Its location in Fujairah on the Gulf of Oman is outside the Strait of Hormuz, which Iran sometimes threatens to close because of US sanctions.
The agreement with a South Korean company envisages expanding the design and size of the $1.2 billion project. Work on the project began last year and its first phase, which included construction of the access tunnel, has just been completed.
The facility will be connected to a 360km pipeline that was inaugurated in 2012, linking Abu Dhabi’s oil fields with Fujairah Oil Terminal. The pipeline has a capacity of 1.6 million barrels per day and is part of the UAE’s 750km pipeline network with a total capacity of 13 million barrels per day.
The importance of the storage facility and of the UAE’s pipeline network is evident in the success of Abu Dhabi National Oil Company (ADNOC) in recent weeks to attract the first strategic foreign investment in an oil infrastructure in the Middle East.
American companies Black Rock and KKR’s decision to invest $4 billion in UAE’s pipeline network reflects global confidence in Abu Dhabi’s role in securing global energy supplies and protecting the global economy from shocks.
ADNOC’s strategic storage projects are not limited to the UAE. The company has projects for huge storage facilities in many Asian countries. Last November, it signed an agreement with the Indian Strategic Petroleum Reserves company to store its crude oil at an underground facility in the Indian state of Karnataka.