Dear Editor,
There has been extensive media coverage of the growing fallout between Iran and the United States over one of the most strategically important waterways on earth – the Strait of Hormuz. This Channel essentially allows about 20 million barrels of oil per day to pass through an approximately 34 kilometers waterway (at its narrowest point) to key energy markets across the globe. Major producers rely on this route for energy trade – Saudia Arabia, Qatar, and Kuwait to name a few, accounting for roughly 20 percent of global supply. The conflict has recently escalated into the resultant blocking of this channel by Iranian authorities.
The evidence at this time suggests that even before the current fiasco, a number of countries started to align themselves to strategically secure their economies against potential supply shocks that may result from any apparent geo-political weaponizing of conflicts such as the one currently unfolding. In 2021, Iran and China (the largest energy importer in the world) signed a 25-year strategic cooperation arrangement which would see Iran primarily providing China with discounted oil supplies while China in turn has agreed to invest almost 400 billion dollars in Iran’s energy and technology infrastructure; the agreement also sees China absorbing close to 90 percent of Iranian export. For its precautionary bid, India has been diversifying its energy source by importing Liquid Petroleum Gas from the United States to reduce reliance on Gulf supplies. As part of their strategies, countries such as Bangladesh, Vietnam, and Thailand have been giving much attention to remote working and mass transit investments in an effort to reduce energy demand.
International response to this conflict had seen the International Energy Agency (IEA) agreeing to release what many are calling an historic 400 million barrels of oil from its emergency stockpile; the United States also confirmed that it would release 172 million barrels of oil from its Strategic Petroleum Reserve; France indicated intention to chip in another 14.5 million barrels. While these interventions would have aided in cushioning the disruption to global supply, it must be considered that these reserves are not infinite. What is certain is that globally, oil producers are galvanizing efforts to strategically position themselves as robust energy independent economies.
Saudia Arabia presents itself as an excellent case of proactive strategy by being multifaceted in approaching energy security. Supply chain diversification, the use of financial and marketing tools as well as geo-political and trade diplomacy are amongst the envelope of interventions applied by the Saudis that Guyana can tailor to suit our local need in considering long term practical interventions.
Notwithstanding these global interventions to reduce the impact of the prevailing conflicts affecting the global energy landscape, Guyana is poised to seize opportunities at securing similar discounted oil supply arrangements (as in the case of the Iran-China Agreement) to grow our own stockpile of petroleum reserve. A negotiated percentage of our production share being refined in other parts of the world, as part of the sale agreement, and returned to Guyana is not far-fetched.
Iran’s 1954 Consortium Agreement mirrors the arrangement being contemplated. While not exact in roll out, it aligns in principle where the arrangement is a contractual obligation to refine and return a product (refined crude oil) to bridge a supply gap. There are also other modern “swap” Mechanisms that can be explored – Reference South Korea’s Swap Program. Arrangements such as these will allow Guyana to retain an agreed portion of its share of crude oil as refined oil once exported. The buyer agrees to credit Guyana with fixed percentage of the total crude volume once it is refined. There are caveats, however. The storage life of refined oil is finite. Time and the elements (light, air, extreme temperatures) are likely to influence the shelf life of the refined oil which does far better in cool, dark, and sealed containment; conditions which may extend shelf life by as much as a year. Hence, the agreed arrangement(s) must cater for a consistent long-term supply with enough fluidity to fit hand in glove with increasing local demand. From all indications, the Government of Guyana has had proactive engagement with international companies regarding the required Energy Infrastructure (storage and auxiliary facilities) build out that can support such arrangements.
As it stands, our local dilemma presents a unique energy paradox – As one of the world’s fastest growing oil producers (and with production surging to over 900,000 barrels per day), we have not been able to capture any of our oil production for local refining value. We are facing the same supply shocks as non- oil producers coupled with increasing energy demand. According to 2024 data, Guyana consumes approximately 27,000 barrels of gasoline and other petroleum products per day. This amount represents an approximation of the total refined product consumption including gasoline for motor vehicles, diesel for trucks and generators and industrial fuel usage. Our share of world consumption in 2024 amounted to just 0.026 percent while our Per Capital Consumption sits at 1.35 gallons per person (per day). It is important to emphasize that these are rapidly increasing metrics. A cursory glance at the local import market for cars gives the reality of demand on the ground and how transient these numbers are; With such massive offshore energy wealth, there may be urgent need to recalibrate our policy thinking on the strategic relevance of a local oil refinery – albeit on a modular scale. The positive implications of a move in this direction for regional energy security have been otherwise widely discussed.
At present, the growing scarcity of oil at the gas pump is sounding a need for this domestic supply base. As a major oil producer in this part of the world, we should not have to endure the same supply shocks as the rest of our energy consuming regional counterparts. On the global scale, the International Monetary Fund has guided that the global economy would “teether on the brink of recession” should this conflict drag on into year 2027; and of course, coupled with oil prices remaining steadily above $100 per barrel. I will hasten to add that even in the unlikely event that this conflict is resolved in short order, the issues surrounding this channel remains complex with a plethora of moving parts. It is likely that future conflicts are unavoidable. Our current experiences with the global supply shock are just the tip of the iceberg. A small tremor. Guyana must apply greater urgency to reinforcing our energy security strategies and galvanizing all resources to support government’s energy transition policies. In particular, given the significant increases in registered private use vehicles over the past few years, the menu of policy measures already aimed at increasing the uptake of Electric Vehicles in the transportation sector will require unfettered support at every level of government and civil society.
Major takeaways, however, from the prevailing Strait of Hormuz conflict are that Guyana’s existing policies as it regards reducing reliance on fossil fuels as an energy source may require greater resourcing at this decisive juncture to ‘crash’ implementation schedules and to defensively redistribute the composition of our energy mix. Added to that, with our rapidly expanding crude oil production base, Guyana must act now to seize any incremental energy security gains from modular crude oil refining and/or the employment of concessionary crude oil “swap” mechanisms.