Muhammad Al-Ali to Al-Watan: The tensions in Hormuz reveal the transformation of energy security into a cross-border sovereign issue.

Zahraa Habib

In light of the rapid developments taking place in the Strait of Hormuz and the accompanying escalating regional tensions, the issue of energy security is emerging as one of the most important strategic challenges facing the global economy today, going beyond its traditional borders related to securing supplies to being a sovereign and security issue with complex geopolitical dimensions.

In this context, the CEO of the Trends Research and Consulting Group, Dr. Muhammad Abdullah Al-Ali said that what is happening in this vital corridor reflects a strategic fact that cannot be overlooked, which is that any threat to international sea lanes does not only reflect on energy markets, but rather its impact extends to the stability of the entire global economy, including the sectors of transport, industry, food and technology.

Dr. explained. Al-Ali, in an exclusive interview with Al-Watan, said that attempts to use the Strait as a political or economic pressure card represent a grave danger to the international system, warning of the repercussions of allowing this vital artery to be transformed into a blackmail tool that affects the movement of global trade.

He also pointed out that the fragility of some vital sectors, such as travel, aviation, agriculture, and industrial supply chains, reveals the extent of the deep interrelation between the stability of sea lanes and the security of the global economy, stressing that any disturbance in them is quickly reflected in indicators of growth, inflation, and countries’ trade balances.

Dr. explains. During the meeting, Al-Ali discussed the economic and political dimensions of the crisis, the expected periods of recovery, in addition to its repercussions on global markets, and the role of the Gulf countries in reformulating the concept of energy security within a more comprehensive framework based on diversification and strategic connectivity of alternative corridors. Below is the text of the dialogue:

– What are the economic and political dimensions of the tensions in the Strait of Hormuz, or the imposition of transit fees in the next stage, if the situation continues as it is?

The Strait of Hormuz is the most important waterway for energy transport in the world. Between 18 and 20 million barrels of oil and petroleum products pass through it daily, constituting about 20% of global consumption. About a fifth of global liquefied natural gas trade also passes through it.

Therefore, any disturbances or tensions in this strait simply mean creating a global energy crisis, and this is what we are witnessing today.

With the closure of the strait and the disruption of freedom of navigation through it for nearly two months, the world witnessed what the Executive Director of the International Energy Agency, Fatih Birol, described as “the worst energy crisis the world has ever faced,” considering that the current situation in global energy markets is worse than previous crises in the years 1973, 1979, and 2022 combined.

Without a doubt, the continuation of this situation will exacerbate the serious repercussions on the entire global economy, and will restrict the movement of the economy, global growth rates, air traffic, and tourism.

It will also extend its effects to create a global food crisis, as about 20-30% of global nitrogen and phosphate fertilizer exports pass through the Strait of Hormuz, and disruption of these supply chains will raise food prices and put millions of people at risk of hunger.

But the most dangerous of all is allowing Iran to blackmail the world, whether by trying to control this strait, or even by trying to impose fees on transit through it. Which makes it a strong financial source to finance the Iranian regime’s subversive and hostile activities in the region. I do not think that anyone in the world will allow this, or will accept that this vital global corridor be subject to blackmail by Tehran.

– If the Strait of Hormuz is secured, and the US blockade of Iranian ports ends, and if the negotiations succeed, what is the expected time period to compensate for the economic losses in energy security?

⁠Unfortunately, the world will need some time to recover; Some countries, such as Qatar, which is the largest exporter of liquefied natural gas in the world, had their facilities damaged and announced that they needed some time. The International Air Transport Association also indicated that aviation fuel supplies may take months to recover from the effects of the war. In addition, losses in infrastructure, especially energy and transportation facilities, require huge investments; Which makes immediate recovery difficult.

However, it must be noted that the period of recovery from losses will vary according to the economic conditions of countries and regions and the level of development. In the Gulf region, especially in the UAE model, economic recovery from losses in energy security – once a comprehensive settlement of the crisis is reached – may take a short time. Based on the solidity of public budgets, solid export capabilities, and recovery programs based on the capabilities of sovereign funds.

While European countries will need about 12 months to recover and compensate for the losses in energy security indicators, developing countries, especially those with heavy indebtedness, may take more than 18 months to contain the repercussions of energy prices higher than the averages calculated in their budgets, in addition to the sharp deterioration in the exchange rate indicators that they incurred. Due to the Strait of Hormuz crisis.

– To what extent can this step be considered political blackmail or a pressure card?

⁠It is certainly a card of political and economic pressure and blackmail practiced by the Iranian regime on the entire world, and the international community must reject this blackmail.

Some have described the Strait of Hormuz as the nuclear bomb that Tehran possesses to threaten the world, and the United States and the world must prevent Iran from exercising any control over the Strait of Hormuz, and consider this as important as preventing it from possessing nuclear weapons.

Are global markets able to absorb the shock of restrictions or navigational tensions in the strait for a longer period than the current situation?

The global markets affected by the shock of the tensions in the Strait of Hormuz must be considered according to the type of markets and the extent of their connection to fluctuations in energy and agricultural markets. There are markets that are directly linked to energy. Such as the transportation, travel, tourism, and energy-intensive industries, and there are markets that are indirectly linked to this shock.

In the case of the travel, tourism and agricultural sectors that depend on fertilizers imported from the Gulf, these markets are unable to survive for a longer period. This is confirmed by the announcement of major airlines that they may soon be grounded as aviation fuel stocks are about to run out. Many agricultural companies, chip manufacturing companies, and companies that rely on aluminum inputs are also suffering from a shortage of some industrial materials transported through the Strait of Hormuz.

However, some global markets are able to contain the Strait of Hormuz crisis for relatively longer periods, including some Latin American economies, sub-Saharan Africa, Australia, and Canada, especially oil-producing economies.

– How has the transformation of energy security into a cross-border political issue changed the nature of international dealing with these threats?

The recent developments in the Strait of Hormuz reveal a strategic truth that can no longer be ignored, which is that energy security is no longer a sectoral issue linked only to supplies, but has also become a cross-border sovereign issue, in which considerations of the global economy intersect with equations of international security and stability.

Hence, the international response must be decisive in preventing the security and political exploitation of the Strait card and oil supplies by the Iranian regime. Because it will mean that the world will be subjected to the blackmail of this terrorist regime in the future.

– What is meant by the defensive connectivity strategy to protect sea lanes that you spoke about in the “Derasat” symposium?

⁠ The “defense connectivity” strategy means linking the interests of major consuming countries organically to the stability of sea lanes, through structured energy partnerships and global logistical platforms, making any threat to these lanes a direct threat to the interests of these countries. Thus, it will be a catalyst for an automatic international movement to protect it.

Does the threat to the Strait constitute a motive for direct international action to protect global interests?

⁠ Recent events have shown that this strait, despite its geographical narrowness, represents an extremely sensitive focal point in the global economic system, and that any disturbance in it will immediately reflect on global markets, supply chains, and social stability, in various countries of the world from the highest to the lowest, and from north to south.

Therefore, these events must constitute the greatest motivation for all global powers to move to protect their interests and defend this strait.

Here, there is a need for countries in the region to lead an international movement to criminalize the use of sea lanes as a tool for political or economic pressure, develop more binding legal frameworks to protect freedom of navigation, and build regional and international alliances to protect vital lanes, based on the fact that their security is a shared responsibility that transcends the region’s borders.

– What is required of the Gulf countries in the future to ensure the security of their supplies away from relying on limited corridors?

⁠Of course, it is no longer sufficient to secure the flow of oil and gas through specific traditional paths. Rather, energy security must be redefined as “network security” based on the diversification and integration of paths. This includes:

• Developing an interconnected regional system of sea and land corridors and pipelines, thus reducing the impact of choke points; Like the Strait of Hormuz.

• Accelerating projects linking the ports of the Arabian Gulf and the Red Sea; Within a unified logistical framework.

• Promoting investments in alternative infrastructure, as it is a long-term strategic insurance, and not a postponed development option.

– To what extent have the Gulf countries succeeded in diversifying their energy export outlets?

The Gulf countries have achieved well-established successes in diversifying energy export outlets. In some alternatives, it relies on intra-regional gas trade, especially on a gas pipeline between Qatar and the UAE.

The Gulf states also established early efforts to bypass the Strait of Hormuz. Both the UAE and Saudi Arabia have developed oil pipelines far from the heart of the crisis in the Strait of Hormuz. While the Habshan pipeline is capable of transporting about 1.8 million barrels of oil per day, the Saudi East-West pipeline is capable of transporting about 7 million barrels of oil per day.

However, while these diverse export capabilities create an export window that is less sensitive to tensions in the Strait of Hormuz, they remain sensitive to broader geopolitical threats in the Arabian Gulf region, especially in light of the exposure of energy transportation infrastructure to Iranian attacks.

– What is the nature of the international alliances required of the Gulf states in the next stage?

⁠The Gulf states are required, as I mentioned, to build regional and international alliances to protect vital corridors, based on the fact that their security is a shared responsibility that transcends the borders of the region. They are also required to be effective and active in any alliances that specifically target the security of navigation in the Strait of Hormuz or even the Bab al-Mandab Strait.

It must also reconsider its economic and political relations with various countries, in accordance with its positions on the aggressive war launched by Iran against the Gulf states.

– Is it possible to build on the Gulf electrical interconnection experience to create alternative energy corridors?

While the most efficient electric power generation plants rely on natural gas, expanding and strengthening Gulf electrical interconnection networks may support efficient and economic Gulf consumption of energy, and in a way that reduces the repercussions on their economies, if the Strait of Hormuz is closed.

By expanding electrical interconnection networks, energy can be exported indirectly to markets near the Gulf region. However, the abundance of energy sources in most countries of the region will narrow the movement and export space for the energy export sector, and will also reduce its ability to replace energy exports through the Strait of Hormuz. Also, alternative energy transmission infrastructure remains in need of high-cost defense and cyber security protection; Which reduces the profitability of these alternatives compared to maritime energy transportation.

– Who will bear the greatest cost of any escalation in the Strait: producers or consumers?

Economically, oil-producing countries, which are characterized by less ability to diversify their economies, and consumers in developing countries that are heavily indebted and exposed to energy trade, will be the most vulnerable to the damage of closing the Strait of Hormuz for longer periods or a broader escalation in the Strait.

As for the oil producers who have the most diversified economies, and the producers with the highest manufacturing capabilities in non-oil sectors, in addition to the oil-importing countries with high levels of development, they have the economic capabilities that enable them to implement economic and social protection programs that reduce the cost of escalation in the Strait, or slow down its effects and repercussions on their economies for a longer period, but without complete or unlimited protection from these repercussions, if the war lasts for a long time.

– What opportunities can this crisis create for the Gulf countries to strengthen their position in global energy security?

In the short term, there are still opportunities created by the crisis; Including investing in giant oil tanker assets, which can provide dual benefits for transportation in times of peace and safe storage in times of war. The repercussions of the war will also create viable opportunities for national companies operating in the construction, repair, maintenance and cyber protection sectors of the Gulf energy infrastructure.

In the medium and long term, the economic management of energy crises can be enhanced by modeling the current repercussions and developing reliable scenarios with the efficiency of practical testing. This crisis will also help in restructuring Gulf sovereign investments and balancing them between international investments and local investments.

The construction activities of oil pipelines, terminals and shipping docks can also benefit from the repercussions of the crisis to develop a more solid infrastructure that is less vulnerable to threats. In addition, this crisis could create opportunities for investment in manufacturing sectors that use energy locally, and agriculture that uses Gulf fertilizers, which reduces sensitivity to exports and helps in technological programs that replace imports, which ultimately reduces Gulf sensitivity to foreign trade, especially those passing through the Strait of Hormuz.