Oil & Gas Editorial: Chokepoints and Flarepoints
On Friday night at 11pm Easter European Summer Time, military jets buzzed the Turkish capital city of Ankara and major bridges in Istanbul were closed in the first actions of an ostensible military coup. Fizzling out in the early hours of Saturday morning, this short-lived coup d’état resulted in President Recep Tayyip Erdoğan taking swift, decisive and uncompromising action to “cleanse” agencies of state and punish alleged plotters.
In two days, the Turkish Ministry of Interior has seen a purge of almost 9,000 of its officers and the 27-man nucleus at the epicentre of the failed overthrow have been delivered to security forces in Ankara. Promising that conspirators would “pay a very heavy price for this act of treason”, Erdoğan has not ruled out the reintroduction of capital punishment.
Despite the Turkish Straits seeing a daily transit of some three million barrels per day of crude products, making it one of the world’s most important energy chokepoints, the coup attempt saw no associated hike in oil prices on the global markets. That said, the Turkish stock exchange plunged by almost five per cent in the aftermath of Friday’s events, as investors sought to flee from a destabilising nation with an increasingly authoritarian government.
At the same time as Turkey was in the throes of unrest, some 9,000 kilometres away, discontent was churning in the waves of the South China Sea. The Permanent Court of Arbitration (PCA) at The Hague, Netherlands, has ruled against the People’s Republic of China on their encroachments into Filipino waters and territorial claims in the South China Sea. The Chinese Foreign Ministry was quick to pronounce this ruling as “null and void”, threatening to set up an air defense identification zone in response.
If the possibility of suspension of movement through the Turkish Straits didn’t affect wider commerce or the oil price, disruption of trade transit in the South China Sea could turn the global economy upside down.
An estimated $5 trillion of goods are shipped through South China Sea shipping lanes each year, accounting for one third of all maritime traffic worldwide. The South China Sea is also home to the world’s second most influential energy chokepoint: the Straits of Malacca. The shortest sea route between the Middle East and Asia, this bottleneck sees the passage of five times more crude per day than the Turkish Straits - about 27 per cent of the total global maritime oil trade. A spur-of-the-moment annexation of this 3,500,000 square rhombus of would severely blight the economic fortunes of East Asia and Oceania.
South China Sea boundaries have been disputed for some 40 years, but tensions have heightened since oil and gas reserves of up to 125 billion barrels of oil and five hundred trillion cubic feet of natural gas were discovered beneath the waves. With Chinese energy needs outweighing those of any other country on Earth, it is unlikely that the country’s stance will shift absent vice-like political pressure.
With the second half of 2016 now waning in front of us, whoever said a week was a long time in politics?....