Pan Am Halts Flights to Tel Aviv and Riyadh : Saudi Arabia, Iran Step Up Shipments of Oil From Gulf

Saudi Arabia and Iran have stepped up tanker shipments of crude oil out of the Persian Gulf in recent weeks out of fear that a war would disrupt gulf shipping after the Jan. 15 deadline for Iraq to pull out of Kuwait, analysts and shipping sources said this week.

By the deadline, as much as 100 million barrels of Saudi and Iranian crude oil could be in “floating storage”--that is, on tankers with no specific destination but away from the Persian Gulf and available to be sent to customers in the event of war, the sources said.

“The Saudis and Iranians are being very cautious right now,” said Thomas E. Wallin, group editor with Petroleum Intelligence Weekly, an industry newsletter in New York. “They won’t call it a strategic reserve, but that’s pretty clearly the main reason for doing this.”

The two oil-producing nations fear that a tanker war--such as the one that damaged 500 ships during the Iran-Iraq War of the 1980s--would prevent customers from calling at Iranian or Saudi ports or sailing through the narrow but strategic Strait of Hormuz, analysts said.

Both Saudi Arabia and Iran, who are producing oil at full capacity, will also want to have crude on hand to take advantage of high oil prices that are certain to result from any gulf hostilities, analysts added.

The rush to ship oil from the gulf has proceeded despite a tumble in crude prices this week that analysts have attributed to diplomatic movements aimed at preventing a military clash. On Thursday, prices for light sweet crude oil for February delivery plunged $1.01 to settle at $25.48 a barrel in trading on the New York Mercantile Exchange--the lowest price since Aug. 3, the day after Iraq invaded Kuwait.

Analysts estimate that Saudi Arabia’s oil production is running at about 8.5 million barrels a day, up from about 5.4 million barrels before Iraq invaded Kuwait. Similarly, Iran’s oil production is running at about 3.3 million barrels a day, up from 3 million barrels before the invasion.

U.S. shipping brokers, who arrange charters of oil tankers, speculated that major oil companies and other customers of Persian Gulf oil may have also stepped up tanker activity. But officials of several major oil companies denied in interviews that they have changed their shipping patterns.

Both the state-owned National Iranian Tanker Co. and Saudi Arabia’s state shipping company have increased tanker shipments, said one oil shipping executive based in Dhahran, Saudi Arabia, who asked not to be identified. “Quite a few ships are storing now,” he said, meaning that tankers full of crude are at sea without a specific market destination.

While the executive said the level of activity was not unusual, he added: “Perhaps last month (there) was a little more than normal with companies taking precautions against problems in the gulf.”

Iran alone chartered six to eight crude oil tankers in the last week, according to Wallin. Other sources at U.S. brokerages, however, said a flurry of shipping activity in December had fallen off by the beginning of this month.

As many as 50 tankers are being used for storage or shipping purposes by Saudi Arabia and Iran, said a shipping broker at LQM Tanker Chartering in New York. Iran owns a fleet of 33 tankers, Saudi Arabia a fleet of five, according to Arthur McKenzie, a former Exxon shipping executive and principal of the Tanker Advisory Center in New York.

Saudi Arabia has as much as 40 million barrels of crude oil in tankers parked in the North Sea off northwestern Europe, in the Caribbean Ocean or en route to customers, Wallin said. By Jan. 15, it could add as much as 12 million barrels more.

At the same time, Iran has another 40 million barrels of crude oil in tankers in the Atlantic Ocean off Spain or off the coast of the United Kingdom. Iran could add another 12 million to 16 million by Jan. 15, he said.

All together, the extra oil that may ultimately be tankered out of the gulf by mid-month would meet the United States’ needs, by way of comparison, for about a week at current consumption levels.

The amounts are well in excess of the normal volumes of crude each nation normally puts at sea, Wallin said. Saudi Arabia normally has about 10 million barrels afloat, with more in storage at marine terminals in northwestern Europe or on Caribbean islands. The Iranians typically have between 5 million and 25 million barrels of crude at sea or stored in tankers, due to a shortage of onshore storage facilities.

Shipping sources said the two oil-producing nations stepped up tanker shipments as early as September, but that the pace seemed to accelerate in December. Part of that is seasonal: Tanker shipments normally pick up before Christmas to meet higher demand in industrialized nations for fuel and heating oil.

But part of it is clearly precautionary--particularly since world oil supplies are glutted. “If not for the war (threat), there would have been fewer ‘liftings’ (tanker loadings) than last year because inventories are so high,” said Chris DeSantis, a broker who charters oil tankers at McQuilling Brokerage Inc. in New York.

Some shipping brokers said storage and freight rates had risen in December to reflect the higher demand for so-called Very Large Crude Carriers, the huge ships that ply the gulf trade. Such ships have a capacity of between 200,000 and 300,000 dead-weight tons of crude oil.

“Right now, I’d have to say (rates) are stable at levels that are higher than what they were two months ago,” said one shipping broker in New York. He estimated that rates have increased as much as 40% since the gulf crisis began.

The broker at LQM Tanker Chartering, who asked not to be named, estimated that the Saudis were now paying as much as $35,000 a day for tanker storage, up from about $25,000 to $30,000 in September.

It’s unclear how much a gulf war would threaten tanker traffic. Iran and Iraq did target each other’s oil tankers during their eight-year war. During that war, the Saudis stored as much as 65 million barrels of crude in the Caribbean, Wallin said.

But a conflict between Iraq and U.S.-led forces in Kuwait might not spill over into the gulf shipping lanes, analysts said.

“There is certainly vulnerability, particularly from Exocet missiles, which the Iraqis have used in the past,” said Henry M. Schuler, director of the energy security program at the Center for Strategic and International Studies in Washington. “But I would expect that the U.S. could put up sufficient air defense to defend any tankers from Iraqi aircraft.”

Nevertheless, it’s doubtful tanker operators would want to send their ships into a war zone should hostilities erupt.

“If they start shooting, then the market (for gulf tankers) will drop dramatically,” said one broker. Even before then, “I would think that people would hesitate to go in there as we get closer to the deadline, specifically for fear of being caught should they start shooting,” he added.

Times staff writer Nick B. Williams in Amman, Jordan, contributed to this story.