Rattling the supply chain

By Eric Watkins

LOS ANGELES, Mar. 23 – Does North Korea’s threat to launch a ballistic missile next month have anything to do the global oil industry? If you believe not, I’ll sell you the Empire State Building or the Egyptian pyramids.

Does that phrase ring a bell? It should. It was uttered just a few days ago by Saudi Arabia’s indefatigable Oil Minister Ali I. Al-Naimi who was dismissing Iran’s threats to close the Strait of Hormuz as bluster.

Along the way, though, the minister also mentioned an interesting point about Saudi oil storage tanks: “Our inventories both in Saudi Arabia and worldwide are full. Our Rotterdam inventory is full, Sidi Kerir is full, Okinawa is full. 100% full. 10 million barrels in total, I think.”

“The reason we have them there, is that they are near the market. And I will give you an example,” Al-Naimi said. “Two weeks ago the Chinese needed about 1.5 million barrels on a rush basis. It is the first cargo we sold from Okinawa, because it is near the market.”

NEAR THE MARKET

Okinawa is indeed near the oil market, and it is also a terminus for the very large crude carriers that ply the supply chain that stretches from the Persian Gulf, across the Indian Ocean, through the Strait of Malacca and northward to East Asia’s markets – including Japan.

No less important, Okinawa lies near the trajectory of North Korea’s planned missile launch next month. Indeed, on announcing the launch, the North Koreans pointedly said their rocket would be heading in a southerly direction so as to avoid the Japanese mainland.

“A safe flight orbit has been chosen so that carrier rocket debris to be generated during the flight would not have any impact on neighboring countries,” the North’s news agency said.

The Kwangmyongsong-3, designed as a “polar-orbiting earth observation satellite,” will be launched from a station in the northwestern corner of the country, bordering China, and blasted in a southern direction, North Korea said.

However, the Japanese are so concerned about the trajectory crossing Okinawa that they have plans to shoot down the North Korean missile, if necessary.

JAPAN DEPLOYS INTERCEPTORS

“I have ordered officials to prepare to deploy the PAC-3 and Aegis warships,” said Japan’s Defense Minister Naoki Tanaka, referring to surface-to-air missiles and destroyers carrying missiles.

“We are talking to relevant local governments about the deployment,” he added, as the surface-to-air interceptors are likely to be deployed on Okinawa and its island chain.

The North Korean missile launch also is Pyongyang’s way of thumbing its nose at the March 26-27 Nuclear Security Summit to be held across the 38th Parallel in South Korea.

Leaders and representatives from 57 countries and international organizations are scheduled to attend the summit, where protection of nuclear facilities and steps to tackle nuclear terrorist threats are high on the agenda.

What else can North Korea’s planned launch be called except a nuclear terrorist threat? And it is a threat aimed at the world’s main oil supply line, with its terminus in Japan.

POINT-COUNTER-POINT

Does this have anything to do with the Iranian situation?

Call it point-counter-point: as the U.S. and its allies apply pressure to Iran at one end of the supply chain, North Korea is rattling its nuclear capability at the other end. And nothing could make the need to encourage Iran to abandon its nuclear ambitions more clear.

Who wishes to see both ends of the world’s main oil supply line in the hands of enemies holding nuclear weapons along with the ability to deliver them thousands of miles? If you think oil prices are high now, just imagine how much higher they’d go then.

That would really make the markets go ballistic.

© Glamma Productions Inc. 2012

Contact Eric Watkins at hippalus@yahoo.com

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About Eric Watkins

Eric Watkins is a consultant specializing in oil diplomacy. A former journalist, Mr. Watkins's work has appeared in numerous leading publications including The Wall Street Journal, The Economist, The Financial Times, and specialist media such as Oil & Gas Journal, Middle East Economic Survey (MEES), and Lloyd's List.
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