Maritime piracy in the Strait of Hormuz and implications of energy export security

Persian Gulf Countries (PGC) are collectively the world's largest exporter of fuels. The vast majority of these fuels are shipped via maritime routes and require transit through the Strait of Hormuz. As such, the Strait of Hormuz is considered the most important chokepoint for the global energy economy. This study examines the effect of maritime piracy through this chokepoint on exports of specific fuels from each PGC. We classify piracy as a soft restriction in the Strait; the effect of a such a restriction depends on the risk sensitivities of the trading countries and the type of fuel being traded. We use a two-stage least squares regression to first estimate the impact of piracy attacks on tanker traffic through the Strait, and then estimate the risk that the restriction would pose to energy exports. The first stage of the analysis reveals that tanker transit declines two years after piracy attacks. The second stage of the analysis, however, indicates that only refined petroleum exports from Bahrain and Kuwait are significantly impacted. We discuss drivers of this heterogeneity, including underlying market structures that allow crude oil to remain relatively resilient to soft restrictions. We then discuss policy implications of this risk to global energy security.

Duke Scholars

Author Lincoln F. Pratson Earth and Climate Sciences