Economy or ecology? We have the energy for both.

We are investing all of our energy into creating solutions for sustainable prosperity. That’s why we have changed our name from MAN Diesel & Turbo to MAN Energy Solutions.

Step by step, we advance marine, power, and industry solutions. This is future in the making. For customers, stakeholders, and society.

www.man-es.com

1805_10871_MAN_Imageanzeige_EnergySolutions_210x290mm_ISO_V2.indd 1 06.06.18 15:43

Hafez Darya Arya Shipping Company (The Container Arm Of IRISL Group)

Hafez Darya Arya Shipping Company owns 30 container vessels of various sizes with aggregate capacity of 91,300 TEU and operates 7 weekly loops as follows:

1. HDM Service : Deploying 6 vessels including 5 vessels of 6500 TEU capacity, and 1 vessel of 5100 TEU covering all ports in Far East and North China up to Persian Gulf and Middle East. 2. SCP Service : Using 6 vessels including 3 vessels of 5100 TEU capacity, 2 vessels of 3300 TEU and 1 vessel of 2700 TEU connecting South and Central China to PG and Middle East. 3. ISC Service : Employing 3 vessels of 2200 TEU capacity, connecting Singapore, Port Klang and all ports in South East Asia to Middle east. 4. SAS Service : Using 2 vessels of 1000 TEU capacity, making a direct connection between South Iranian ports and Indian Subcontinents to East African ports of Mombasa, Darussalam, and Zanzibar. 5. ECL Service : Deploying 4 vessels with the capacity of each 2500 TEU respectively. Making fast connections between all European and Mediterranean ports up to Persian Gulf. 6. IIX Service : Operating 4 vessels including 3 with capacities of 1000 TEU, making an exclusive and direct connection from India to Umm Qasr of Iraq, Iran and Emirates. 7. XPG Service : Deploying 5 vessels including 4 with capacities of 1100 TEU and 1 with 300 TEU connecting all Southern Iranian ports of Bandar Abbas, Bushehr, Bandar Imam Khomeini, Assaluyeh and Khorramshahr to the Persian Gulf (Qatar) vice versa.

Hafez Darya Arya also operates more than 270,000 TEU of owned containers while any extra required numbers can be leased whenever and wherever required to satisfy customers, demands State-of-the-art-web-based software system and on line tracking and container tracing system is another facility provided by Hafez Darya Arya Shipping Company to our esteemed clients. Further information may be available through our website: www.hdasco.com You may make your inquiries, suggestions, complaints, Tracking, etc, using our auto answering number of +98-21-23842000, or directly to:

Management office: Tel : +98 21 23843701 Fax : +98 21 23843702 Email: [email protected] , [email protected]

Marketing and Customer Service Division: Tel : +98 21 23843199 +98 21 23842000 Fax : +98 21 26100740-1 Email : [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected] [email protected]; [email protected] (Attending Customers’ Complaints): [email protected]

Operation & Capacity Management Division: Tel : +98 21 23843182 Fax : +98 21 23843704 Email : [email protected] [email protected]

Container Operation Department: Tel : +98 21 23843156 Fax : +98 21 23843705 Email: [email protected]; [email protected] [email protected]

Financial Department: Tel : + 98 21 23842660 Fax : +98 21 23843707 Email : [email protected]; [email protected] The Advantages & Privileges Customers Will Enjoy When Utilizing HDASCO Services: Exemption from flag tax. Planning & Development Office - Responsible for attending Competitive freight rates and flexible transit time. Extensive agency network facilities in Asia, Europe, Persian Gulf region and Africa. Customers’ Complaints, supervising Forwarders & Agents Transportation services (Sea, Road and Rail) to Iran and CIS countries in collaboration with as well as overseas representatives’ performances IRISL Group affiliated companies. Tel : +98 21 23843246 Online services to customers in the scope of freight and equipment tracking. Fax : +98 21 26100748 Holding of training courses related to marketing and port operations in IRISL Training Institute. Email : [email protected]; [email protected] (Agents’ Performances): [email protected] (IT Department): [email protected]

www.hdasco.com Khazar Sea Shipping Lines Leader in Non-petroleum Exports

Liner Services Bandar Anzali, Astara, Nowshahr, Feridon kenar, • Maritime transportation including shipment of ironware, Amir abad Ports to/ from: grain, wood, industrial commodities, cement, ironstone, • Ports of Russian Federation (Astarakhan clinker, coke, general cargo, project equipment, container and Makhachkala) and automobile • Ports of the Republic of Kazakhstan • Providing regular shipping Lines to Import/ export goods (Aktau) from Iranian Northern ports to foreign ports of the Caspian • Ports of the Republic of Azerbaijan Sea (Baku) • Providing competitive freight shipping rates • Ports of the Republic of Turkmenistan • Providing the best and easiest conditions for maritime (Turkmenbashi) transportation as well as issuing standard Bill Of Lading • Ports of Volga River • Offering free consultancy to owners to guarantee a reliable, • Ports of Azov Sea fast and cheap transportation in the Caspian Sea • Ports of Black Sea/ Russia, Ukraine, • Tax Exemption in freight rates of imported products by 10% Georgia, Bulgaria, Romania and Turkey • Receiving freight rates of export cargoes by Rial • Providing 20-40′ standard dry containers and 40′refrigerated ones in all Iran’s ports and foreign ports of the Caspian Sea • Providing container shipping by Door-to-Door and Full Head Office LINER Mostafa Khomeini St. Ghazian, • Shipping of 20-40′ dry containers and 40′ refrigerated ones Anzali Free Zone, Iran through C.O.C and S.O.C by the fleet • Providing cargo transit from ports of Far East to the Persian P.O.BOX: 4315671145 Gulf and CIS Countries and vice versa Tel: +98 (13) 44 42 38 01-3 • Shipment of cargo and oil products within the Caspian Sea Fax: +98 (13) 44 42 36 26 • Providing trans-regional cargo and oil products shipping as well as swap ship agency services

Shipping Magazine CONTENTS

Published quarterly by IRISL 002 Opening remarks: populism versus Volume 10, Sep 2018 rationalism! ISSN: 1027-1058 005 Marine : trade gateways!

006 Leading container companies to move to monopoly

010 The challenges of bulk shipping market and Legal Representative: the ambiguous outlook Ali Akbar Ghonji 014 A review on the economic activities of ports and terminals Editor-in-chief: Amir Fallah 026 A glance at straits, channels and economic [email protected] corridors 032 Nicaragua; competitor of Panama and Suez Journalists: Canals Behrooz Ghahremani, Seyed Majid Motahari Leyla Beyranvand, Fatemeh Moonesan, 036 Speed to hasten and cost to decrease; Sarah Zeinalzadeh, Narges Ehsandar, achievement of international canals Elham Ghorbani,Fatemeh Bayat, The role of international waterways in the Fereshteh Azizkhani, 040 Hossein Torkashvand global economy 049 Energy: the gradual death of Designer: a dream! Fatemeh Abedini 050 The danger of 60 years history collapse Financial-Administrative Department: Golnoosh Afrooshe 056 USA against World Energy Security 064 An Elegy for OPEC Photographer: Ali Nazemi 070 Trump command …?! ADDRESS: No.523, Asseman Tower, Shahid Lavasani 075 Close Up: in search of globalization! (Farmanieh) Junction, Pasdaran Ave. Tehran - Iran. 076 A giant leap in fulfilling China’s “One Belt, One P.o.Box: 19395/1311 Road” dream Tel: (+98 21) 26100368 080 LME welcomes the largest economy of the Fax: (+98 21) 26100371 world in the near future

086 I disagree; therefore, I am.

090 Oil market turbulence and the role of trade war in it

General Manager of 096 Confucianism rebellion against Weber values! Advertising Department: Fatemeh Moonesan 099 Glance: standardization! Tel: +989210471077 +982123844728 100 The environment is probably the biggest issue Email: [email protected] on our agenda [email protected] 104 Chaos caused by Bureaucrats and politicians under public pressure Domestic Advertising Manager: Sahar Eyvazi Adli 112 Iran to produce 30% of the world’s Ethanol by Tel: +989124238451, +98212384759 2020 Email: [email protected] 115 Bulletin: LNG; alternative bunker! Opening Remarks

presidency, he directly managed the economic Given the lack of understanding of modern world, confrontation to apply tariffs on commodities of once again, trump threatened the world and in the Populism Versus other countries. light of rising oil and fuel prices in his country, However, another opposing behavior of this he used the countries of the region to neutralize phenomenon could be seen in the exit from the Iran’s lack of presence in the market and reduce JCPOA which was called the modern achievement oil prices. However, lack of understanding and of the world in the middle of the second decade of use the Twitter tool instead of a real activity Rationalism! the current century. According to the international defeated him. law, an agreement was reached that all sides During the time the JCPOA was achieved, By: Amir Falah exploiting a discourse, managed one of the most the Supreme Leader’s speech came out in a Editor in Chief challenging issues and that was verified through statement that “If the U.S. shows good progress, Concurrent with the twenty-first century in which the minimums on the basis of that. Considering the global instrument, but Trump was decided to the possibility of negotiation in other dimensions the world entered a new modern era, ample of the post war era and collapse of the Soviet Union oppose and finally it happened. could also occur”. However, as he had predicted, behaviors changed and the world followed peace as well as a change in Chinese perspective from The exit from the JCPOA meant the return of the U.S. lack of honesty particularly after and communication at least after the two ruinous Maoism to Dangism, today world figured out sanctions but the Europe started disagreement Trump’s presidency has questioned Trump’s new wars, and consequently the world confirmed that the utopianism period has been past and against the U.S. to save its face. However, there discourse of readiness for another agreement. convergence, universality in economy and of the social life has been constructed nor for the is not anybody who does not know the impact Trump aimed at gaining power through course diplomacy more than the past. maximums but for the minimum. In other words, of America’s economy on large companies which dependency on twitter and having disrespectful Although the outburst of concrete phenomenon the perspective changed to the idea that “interpret created a boom in the economic relations that behavior toward Iranians. However, the such as Al-Qaeda and the Taliban which were the the world, not change it”. was the product of JCPOA. country’s underlying politics led to a reference product of the last century led to the world shock However, the economic pressure destroyed all Iran, as one of the parties of the treaty, declared to public understanding and reminded that the as well as the behavior of terrorist that caused the existed layers in a way that the world did not that if Iran’s interests were not met, it would not nuclear agreement is not an achievement and it war-oriented measures, new rationalism changed realize the emerging phenomena in the platform be necessary to continue JCPOA. Meanwhile, is a product of social contract. This agreement the discourse after the economic recession of of modern world and liberal reasoning. They Iran in accordance with the rationality it has was achieved based on recording discourse and 2008 and the West who was the mother of new called it populism while it was practically just a taken, has given European countries and other international law. theory once again started a young approach return to the abrogated theory of “change of the parties the opportunity to protect this important Trump’s behavior which was based on insult, which is called “Real Policy” within the internet world”! achievement. disagreement and threatening has shocked the transparency era. Fukuyama, in the book “Political Order and Trump who does not recognize any rule, contrary world, and this is the same literature that brought Unilateralism of the U.S. as the largest economy Political Decay” published in 2014, believes to the diplomatic custom, did not attend any about ruinous wars 70 years ago. These wars of the world brought about variation in the war that excessive confidence in the rationality of meeting and did not give any statement to were based on disrespect, instability and, of functions. However, there was rationality behind liberalism and forgetting this predicate according announce his disagreement. He just exploited course, foray in the interests of other countries. such a bullying action in which it authorized the to which people passed the stage of democracy the cyberspace and threatened the world with the Therefore, the new and modern world would no basis of international law; the product of “social such as the U.S. and Bush as well as Clinton support of some dead groups such as Mujahedin longer be convinced for any war. contract” after the Word War II. period, is a warning due to the return to the to create restrictions in the platform of Iran’s If we accept that preserving the existing conditions The crisis of 2008 passed due to this rationality behavior of these two modes of thought (Bush economic relations, but moving against the was considered one of the requirements of the and global convergence and the world hoped and Clinton). This could bring about terrible stream would not let him to achieve his goal. modern world and the fact that economy and for an agreement of the century; an agreement consequences, and in 2016, this prediction was Iran’s goal of being present in the international economic homogeneity would be interpreted based on which the Iranian nuclear program’s successful, and Southern populists won the agreement of JCPOA was to take advantage as a fair distribution (not equal) of benefits in controversy ended, and JCPOA became symbol Northern elites, and a phenomenon appeared in of the economic benefits and the lifting of the world, and if we admit new ideas based on of a new theory, according to which the whole the U.S. that broke out all the notions of the post sanctions. Presently with the withdrawal of the economic liberalism have been destroyed for world once again started negotiation versus war. war world. U.S. and limitation of this goal, Iran shocked human benefit; Trump’s disapproval is a reminder It demonstrated that the deepest and most eroded Trump entered the White House with a theory the U.S. rightly based on the new achievement of the sharpest actions of the last century and it gulfs are not dealt with the bullet, instead they are that was opposition; the opposition to everything of international politics, namely, “Real Politics”. must be admitted that populism and demagogy Due to such an achievement, “if a barrier situated are nothing but distortion. Volume.10 / Sep 2018 Volume.10 / Sep 2018 solvable by discourse and this was the product that was the achievement of the world and years of modern wisdom; the wisdom that although of negotiations lied behind that. On the basis of against Iran’s oil sale, there is not any reason It should be said that the world faces an irrational changed truth with truth and concept with this behavior and at the very beginning of the for other countries to sell their oil”. This is not giant after many years, and this phenomenon will concept, confirmed the same “apprehension” days of his presidency, he entered the tariff war a threat, instead, it is a practical step taken by be solved through human intellect! which was real and objective. It was admitted that due to his incompetency and lack of perception the country that the large proportion of its global wherever logic is dominating, one could reach of a new economy. After a year passed from his impact is the oil resources. Payam Darya Payam Darya

2 3 Marine

What Is the Role of Straits, Waterways, and Ports on Global Economy? Trade Gateways! Volume.10 / Sep 2018 Payam Darya

5 Interview

MD of HDASCO in an interviewee with PD: Leading container companies to move to monopoly

How do you evaluate the these measures make the cargo present condition of container carrying not to experience the shipping in the world? expected favorable growth. The flow of container-shipping line’s performance Considering the globalization Regarding the fall in freight was not desirable due to the losses most of them mottos, shipping industry has rate, an increase of tonnage reported. This event led container lines to move being prepared for a significant in the international market as toward monopoly and reduction in number as might change and ordered mega well as high speed of supply be less than ten container lines would be remained size ships with the capacity of in comparison to demand have at the global level. In line with this and during the 22,000 TEU. Due to the crucial been recorded as the mega last three years, more than 10 leading shipping role of container in which it size container ships came into lines bankrupted, sold or merged. Meanwhile, those provides the distance between operation. Moreover, some operated in the niche markets such the national fleet cheap producer and consumer to remained lines became larger survived. To elaborate the situation of container be shorten considerably, many through coalition and merger lines in the international scope, PD managed an experts believe that container is and put pressure on medium interview with the MD of HDASCO, Cap. Hamzeh more important even than WTO lines. However, niche markets Keshavarz. and GATT. have been affected less than Entrance of ULCVs caused others and more than ten Volume.10 / Sep 2018 Volume.10 / Sep 2018 western industrialized countries shipping companies bankrupted, which lost competition against sold or merged during the last developing countries in Asia, to three years. OOCL shipping move around “Protectionism”, company, which was the last the one which Trump is paying national line of Hong Kong, was serious attention to. Then, sold during the last month. Payam Darya Payam Darya

6 7 Interview

How will be the future of place to protect their domestic are not active and consequently through Chabahar. In addition, container shipping? products, we have faced a the amount of cargo decreases, it the shipping line to Qatar and As explained earlier, shipping trade war. Imposing tariffs reported a high volume of cargo Iraq also demonstrates excellent lines are to be decreased to 7-9 means restriction of cargo to be transported. performance. and moved toward monopoly. transportation at an international In the export side, fortunately, Consequently, the secret level. In this way, the middle besides winning the tenders How is the cooperation of the agreements among the lines lines that are in operation in the which was carried out in a totally company with other lines? would probably increase. In extensive international scope competitive circumstances The company has had a very addition, fuel price that is a would be threatened. before the sanctions’ issues, good joint collaboration with derivative of oil price at the In addition, the trade war as proper measures in terms of some foreign lines, which has global level has enhanced the well as other regional issues junior management have been now been stopped by the U.S. lines’ cost which resulted in the have somehow affected the oil taken to enhance the exported government’s pressures, but it inappropriateness of revenue to transportation, so that oil and goods of the country. does not have a negative effect performance costs. fuel prices are rising, which will on its operations fortunately. increase other shipping lines’ How do you evaluate the So far, a significant number of What are the effects of cargo’s costs. performance of container containers have been purchased supply and demand on In this condition, the Islamic division of IRISL during the in finance form, which has container shipping? Republic of Iran shipping Lines last year? increased considerably Given the proposed issues in the has constantly attempted to Container division of IRISL compared with the past and world and the hottest topic of have the most of its activities experienced a total growth of the common condition in a the media, demand would not in traditional and niche markets 17.2 in carrying cargo which way that it brings about a good enjoy a considerable growth. and focus more on areas with consisted of 18.1%, 7.8% and success in attracting finance. The ships enlarged, the Panama strong points. Stopping foreign 49.1% growth in importing, Moreover, the company exploits Canal widened, ships transited shipping lines to enter Iran, exporting and the international the container ships of Valfajr from this canal which had to although it is a threat to the era in 2017, respectively. Shipping Company. IRISL announced its readiness the sovereignty organizations revolve the Americas at past country, can be exploited as an However, in comparison to the to both transport goods from as well as port and marine and the two-sided Suez Canal opportunity for development optimistic budget that it has set, What steps have been taken to the main origins in form of polciu0makers can bring us to improved which all led to an relying on the IRISL’s a 4.1 percent fall in terms of exploit new technologies? liner and containers from other our great national goals and increase in the supply side. capabilities. While the sanctions TEU recorded. In the field of digitization, lines in form of feeder to the pass through these particular On the other hand, increase in oil may limit the presence of IRISL Concerning the revenue in Marine Information Technology ports of the country by utilizing conditions successfully. price could encourage oil-rich in the international markets, it 2017 in comparison to 2016, Development Company (MITD) its mega size ships in the case Yet, the other related countries, countries adjacent to can create confidence on the it saw an increase of 31.2%. is due to prepare a very good of necessity. Regarding the organizations must comprehend the Persian Gulf, Caspian Sea, part of the country’s merchants It is noteworthy that in 2017 digitalized package by the end national interests, no restriction the real concept of issues South America and Africa to for transportation by focusing the company faced a rise in of September. At the same time, or consideration existed. and improve the primary buy more oil. After the end of on domestic and niche markets. fuel prices from $300 to $500. container division of IRISL Meanwhile, governmental and effective economical the intended imposed wars and Currently, foreign shipping lines Moreover, the company faced has provided satisfying and policy-makers and marine institutions. start of the growth in involved that transit to Iran’s ports have unexpected tariffs by the side effective online measures for the sovereignty organizations Our colleagues, both at the countries, shipment of cargos increased their freight rates. of PMO which have not been customers. must not be worried about the office and the sea, should will be increased. Therefore, it is However, IRISL has always taken into consideration at the shortage of feeder which was pay special attention to the expected that good opportunities tried to balance rates so that time of setting the budget. The Given the new sanctions, how proposed in some contexts. circumstances we are passing being created in the regions’ no shocks are imposed on the container division of IRISL do you evaluate the condition through. Their double effort, market and IRISL could exploit exporter or importer. carried about 46 percent of the of container shipping fleet? What is your approach solidarity, and understanding of them to achieve its national imported goods of the country Fortunately, the age and capacity to overcome the current the issues along with grace and goals. Considering these elaborations in 2017. Fortunately, during of our ships will meet the needs situation? inspiration of Allah will make Volume.10 / Sep 2018 Volume.10 / Sep 2018 how will be the activities’ of the second quarter of 2018 it of the country. In the previous IRISL is an active part in us to overcome this important What are the effects of trade IRISL as an international enjoyed carrying 56 percent of sanction era that foreign this economical war which is economic struggle and not only war of the China and U.S. on company? the imported goods. shipping companies refused to obliged to carry out its duties we can enjoy the benefits gained container shipping? IRISL has passed a desirable The company is responsible for enter Iran’s ports, IRISL along in the best manner. In the from it, the economy of our Given the supportive tariffs situation in August for instance carrying strategic commodities with Valfajr handled carrying current specific circumstances, country will be appreciated. Payam Darya Payam Darya that countries have put in that European industrial markets from India to Afghanistan goods to 85 percent. Meanwhile, collaborative efforts between all 8 9 Interview

The Challenges of Bulk Shipping Market and the Ambiguous Outlook

By considering the challenging conditions of the global trade market and the political conditions prevailing on the major players of the world economy, the bulk shipping market is also not safe from the tensions and challenges. It seems like all the factors such as politics, economy, and industry have contributed, and the climate issue has been added to test the ability of shipping companies more than ever, and this is the critical point where management, especially crisis management, can act as a savior. It will rescue this sinking ship in a hurricane and foggy weather to reach the safe shore. In following paragraphs, there is an interview with Ali Akbar Ghonji, CEO of Safiran Payam Darya Shipping Company, to analyze the bulk shipping market and the challenges ahead. Volume.10 / Sep 2018 Volume.10 / Sep 2018 Payam Darya Payam Darya

10 11 Interview

How do you analysis the targeted imports of agricultural to technical problems, which this field is the low activity 5.5% by 2023. and port costs affect the bulk outlook of bulk shipping products from the United is expected to continue until of scrapping, which has freight rate. Furthermore, due to market? States. In addition to China, the fourth quarter of 2018. been driven by a relative What is the role of climate the fact that bulk transportation Up to now, in 2018 trade the United States has imposed Meanwhile, some events have improvement in the market, so change and drought in the are tramp trade and are not tensions, Chinese trade policies additional tariffs on imported negatively affected the trade that, in comparison to arise of bulk carrier market? liner, a round trip should cover and disruptions in supply have steel and aluminum from its of bauxite and downstream 13 million tons of capacity, only This year, grain crops have the cost and profits. Therefore, existed, and this trend will major suppliers, including the products such as alumina and 1.7 million tons were scrapped. faced drought challenges in any change in the factors causes continue and affect the market, Europe, Canada and Mexico. aluminum. One of these events While fleet growth in this sector some parts of the world. After the price to change. At the same although the growth of the bulk In addition, soybeans and maize is a strike in the bauxite mine of has been lower compared to the several years of steady growth, time, supply and demand are fleet will remain low. have been changed the trade Guinea. growth of trade, the low level of the agriculture trade has been determining factors of rates. According to fundamental lane, and buyers and sellers The US treasury also imposed scrapping, despite the new IMO a major source of revenue In Iran, changes in different principles of demand and have made changes to their sanctions against Russian environmental rules, suggests for owners of bulk owners, parts such as increase in indexes, supply, the owners of bulk resources. If China implements entities such as United that some owners still have the especially Panamaxes on long demand for transportation in carriers should have a positive agricultural tariffs on the Company Rusal, which is major desire to retain fleets. routes. However, this year, several regions, and the current outlook on the future of the imports of US, Brazil will have aluminum producers in the soybeans, wheat and corn, condition of the country (which market, but there are several the potential to compensate world accounted for 6 percent How do the structural reforms accounting for half of the global leads to the calculation of fuel external factors that are for China’s imports, exactly if of the global production, so of the Chinese economy affect grain trade, have suffered from costs and port costs based on effective in this market, and logistical issues are resolved. many of the companies cut off the bulk market? drought. SANA foreign exchange rate), the marginal improvement in Another option is that China their communications with the Chinese policymakers have Argentina has also suffered as well as the withdrawal of this market may be negatively chooses domestic production company after the sanctions. continued to make structural a severe drought in soybean foreign fleet from the Iranian affected. These factors can be to compensate for the drop In total, bulk carrier owners reforms to reduce pollution, cultivation, and its production market have made increase in sanctions and trade wars. in imports from the United will monitor carefully the although the decline in industrial is projected to decline by demand. This issue coupled Commercial tensions, China’s States, which will have very developments in the market and production had naturally been 14 million tons and reach to with an increase in the final trade policies, disruptions in bad consequences for the the disruptions in the supply of temporary in order to improve 40 million tons. In addition, price, will make a competitive capacity with sanctions and bulk market. In any case, bulk commodities will continue. air quality last winter, but the climate change has also led to and unilateral rise in freight reduced scrapping activities, as the outcome of the business policies introduced to manage a reduction in the production rate, and of course this is related well as the delivery of very large tensions can be positive for the How do you analysis the long-term growth will reduce of wheat and corn in Western to the market. Vale bulk carriers, have made company, because by shifting supply side of dry bulk shipping. Europe and the Black Sea. In the years before the the future of the market still the import route of agricultural market? Canceling financial incentives, Meanwhile, Canada, another recession, before 2008, the uncertain, despite optimism. commodities from the United Four Vale Max ships have been reducing credit growth and major wheat producer, suffers BDI was over 11,000, and even States to Brazil and Argentina, operational from the beginning undermining construction from drought, which will reduce the freight rate for Panamax In the whole maritime trade the ability to enter this market of 2018 and 26 more will be activities will reduce China’s the country’s wheat production ships exceeded $ 80,000 per market there are concerns for international transportation delivered within two years. All economic growth. This and exports. All these changes day. Since mid-2016, when about the intensification of will arise. of these ships will be used for reduction will lead to a decline will lead to higher prices for the BDI was even below 400, the trade wars, and the bulk long-term contracts to carry in China’s steel demand. Also, grains, which will subsequently the freight rate fell to less than market is no exception. How These days, what are the most iron ore on the Brazil-China China’s iron-smelting factories decrease demand and reduce 7,000 per day. However, human do you analyze this? Is there important and challenging route. These 30 vessels can are making changes in order shipping. resources, technical, fuel, and any reason for being concern? news for bulk carrier owners? carry 48 million tons of iron ore to use scrap iron as inputs, other costs always changed China-US trade war has high Several incidents, including annually from Brazil to China, which will reduce demand for Which factors affect the with the trends of their own potential for changing the flow industrial events and which will result in making 67 imported iron ore. rates of global bulk market? markets and did not follow bulk of bulk trade and disturbing sanctions, have prevented the Capesize ships idle. At present, In this way, it is not surprising What about Iran? What is the sector indicators. As a result, in the markets of this sector. Both transportation of iron ore and the rate of Capesize ships is that 2018 will be the year of effect of supply and demand the current situation in which Volume.10 / Sep 2018 Volume.10 / Sep 2018 countries have been involved bauxite, which may continue. lower than all types of ships, slump for iron ore, as it is likely and other effective factors the country faces problems and in bilateral tariffs since April Minas-Rio, iron ore mining and its sharp fluctuations make that China’s consumption will on reduction and increase in indicators are increasing, the 2018. The White House has project in Brazil, which major changes in the dry bulk be slowing down. In sum, the freight rates? freight rates are reasonable, targeted import of $ 50 billion annually produces 26.5 million index. IMF has predicted China’s In the world, factors such as the and the process runs well and is from China, and Beijing has iron ore, have been stopped due Another important issue in economic growth to decline BDI, fuel rates, financial costs, under control. Payam Darya Payam Darya

12 13 Articel

Introduction A Review on the In the past fifty years, global economy has been underpinned on International trade. International trade facilitates the focus of production systems on relative advantage of economies, augments the global flow of work, capitals and goods and hence boosts the reduction of costs. It Economic Activities of also provides the access of producers to global markets, and brings more diversity and competition to the markets to favor the global customers. Between 2001 and 2017, in line with the 5.67% annual growth rate in the world GDP, the merchandise export experienced 6.81% growth in the Ports and Terminals global level. Likewise, the global services export has grown 6.34% on average basis in the past 12 years. By : Mehdi Rastegary Head of Research and Development International trade relies heavily on transportation services. Transportation Sina Ports and Marine Services Co is the principal means for mobility of merchandises and the people around the world. The mobility of these resources is a key element to develop the needed efficiency, agility, and access to the global markets: transportation provides the cost-and-time-efficient delivery of resources (e.g. raw materials, semi-finished goods, equipment, labor force, etc.) for establishment of production systems throughout the world. Moreover, it also provides the access of billions of customers and consumers to the goods and services provided by multitude of suppliers in the global markets. This renders transportation to a very essential element in the global economy. Within the past decade, transportation services have constituted the average shares of 18.61% and 23.26% in the global export and import of all services, respectively. Between all the transport modes, Maritime transport has the largest share in facilitating the mobility for international trade. As oceans and seas cover 71% of the planet, maritime transport is practically seen as the best means of access to overseas markets. Moreover, in comparison to the other modes of transport, the maritime transport merits significant advantages in terms of economy of scale, less pollution, less consumption of renewable resources, less land use, and less need to infrastructural investments. On this basis, nearly all supply chains in our world have essential maritime transport legs within them. The global economy totally depends on the maritime transport; almost 90 % of the global trade is transported by sea and as D.Mitropolous once said, without maritime transport half of the world will freeze and the other half will starve.

Maritime transport and the roles of the ports Maritime transport actually works in terms of the interaction of merchant shipping and commercial ports. Considering the international trade as the Volume.10 / Sep 2018 Volume.10 / Sep 2018 blood in the body of the state’s economy, so the merchant shipping acts as the arteries that bring and carry it in high amounts to the ports (i.e. the heart). The other modes of transport also act as blood veins that carry the blood between the heart and the organs of the body. Nearly all of the international trade of a state runs through its ports and is circulated in the embodiment of its economy by different modes of transport. A state Payam Darya Payam Darya

14 15 Articel

without ports can resemble a body without a heart that shall rely on an external pump to induce the blood circulation in it. This is most evidently seen in terms of the landlocked states: For instance Limao,N. and Venables A.J. (2000) in their study indicated that being located in a landlocked state is equivalent to a 1000-kilometer additional distance from the origins of trade. In this sense, access to sea is a great geo-economic advantage to any nation. The port acts as the vital hub for concentration of the hinterland societies’ supply chains. In this sense, those societies (that encompass households, firms, and the government) depend on the port for the delivery of the imported goods to them, as well as the delivery of their exported goods to the targeted overseas markets. Any defects or stoppages in the performance of ports will affect the performance of these supply chains and their interested parties in the hinterland and foreland. A certain impact of such poor performance will be an increase in the costs of maritime transport to that port. This will have detrimental effects on trade facilitation; for instance Limao,N. and Venables A.J. (2000) argue that a 10% increase in maritime transport costs will reduce the trade volumes by more than 20%. The findings of Radelet,S. and Sachs,J. markets of these ports ( and their foreland markets). These conditions lead to (1998) also indicate that a raise in shipping costs will lead to reductions in the growth development of a very risky and costly intraregional competition between the rates of manufactured exports and GDP per capita. They argue: “… doubling the ports: every port is striving to ascend in the regional hierarchy and many of shipping cost (e.g. from an 8% to 16% CIF band) is associated with slower annual them are struggling to position themselves as the regional hub. This requires growth of slightly more than-half of one percentage point.“ The most catastrophic great investments in infrastructure and capital goods. impacts appear when these supply chains are totally disrupted by the shutdown of As mentioned, the magnitude of cargo flows transported by ships is largely port for any possible reason. One clear instance was the Tianjin port explosions and different with those delivered (or picked) by inland transport modes. The port the temporary shutdown of this port in August 2015 which according to Eventwatch shall be capable to handle the cargoes arriving (and leaving) by any of these annual report (2016) incurred a 9-billion USD loss in its depending supply chains transport modes and provide a buffer capacity to facilitate the interim storage throughout the world. of them in the port. In response to the ever-increasing demands of the shipping The ports shall primarily facilitate the exchange of goods between the maritime industry, the port should continually endeavor to improve its productivity or transport and inland transport modes. Whereas port development is a high-stake, time- to construct new facilities. Both of these processes are technology-driven, consuming, and expensive process, the limited number of ports with higher capacity capital-intensive, time-consuming with many constraints in terms of current and productivity often act as magnets of trade. Furthermore, as the shipping industry operations, availability of land, time, finance, and many more factors. The has focused on ship size growth as one of the main sources of economy of scale in sea, port construction projects costs range from several millions to billions of it is increasingly encountering diseconomy of scale in ports. The best instances can Dollars and bring a great boom to the construction sector. Indeed, the port be seen in the container shipping segment: the ultimate container ship capacity grew is the most significant infrastructural facility in the maritime transport. %1200 larger between 1956 and 2015. Respectively, the shipping lines have been Yet, it is essential to consider that investment in port facilities mainly ends exceedingly demanding for higher quality port facilities and services in the past five in sunk costs which can only be recovered from the revenues ( and other decades. For instance, in 2011 the CEO of Maersk demanded for 6000 moves in 24 achievements) of the port. This is a very risky decision due to immovability hours per ship. Such standards are still very hard to achieve even in the most developed of assets, entry barriers to the market, volatility of cargo flows, revenue ports of the world. Hence, the selective preferences and agreements in the shipping troughs, relations with shipping lines, etc. These constraints bound the limits industry has led to emergence of hierarchical regional hub-and-spokes networks in of the port and its terminal sizes; According to Rodrigue J.P.(2011): ”A too the port markets throughout the world that focus on delivering the container trade in large single facility would represent an undue risk of capital investment as terms of transshipment. In this hierarchy, the hub ports attract more cargo traffic and they can take a long time to amortize and reach profitable traffic levels. It is shipping services, which not only comprises the gateway traffic for their hinterland thus more likely that the existing model aiming towards clusters of terminals societies, but also includes the traffic that should be delivered to the lower level ports owned by different operators within the same port or in ports in proximity in the hierarchy (i.e. the pivot and minor ports). In this sense, the transportation costs Volume.10 / Sep 2018 Volume.10 / Sep 2018 will endure as it conveys flexibility and competitive pressures within port for the direct hinterland of higher-level ports always enjoy lower transportation costs, facilities. Hence the right-sizing of port and its terminals is a critical and more speed in delivery of goods, and higher attraction of international trade and its complicated decision in terms of policymaking in transportation systems. value chains. In these structures, the top-most level ports (i.e. the regional hubs) also Ports are most characterized by the terminals industry as it represents the make enormous revenues at the price of higher transportation costs in lower level core business in them. The terminals industry is a semi-manufacturing ports while extending their strategic influence on the supply chains of the hinterland industry that in spite of supplying terminal services is heavily reliant on Payam Darya Payam Darya

16 17 Articel

port facilities, large terminal equipment fleets, and a huge pool of human resources. Development of terminals and logistics facilities in ports requires a great amount In order to avoid congestion, the terminal can only utilize 60 to 70 percent of its of land. According to Rodrigue,J.P (2017), the need for land in ports is markedly costly resources at best. This means that the terminals shall always carry the heavy growing in response to the need to serve larger ships in ports: while the area of burden of idleness of 30 to 40 percent of their afforded valuable resources at all container terminals in the past decade were normally around 30 hectares, the new times (in the best-perceived conditions). As a matter of this, the terminals industry container terminals area in the regional hubs is around 80 hectares. The port area is always concerned with optimal mobilization of its resources, maintaining highest needs heavy construction and maintenance. Moreover, the port area surroundings possible levels of productivity, reducing costs, eliminating wastes, and maximizing is usually occupied by many logistics and freight distribution centers that are also the revenue streams. Although there is an almost permanent conflict between the heavy consumers of land. Yet it is important to notice that port development also economic interests of the shipping lines and the terminals, the terminal generally adds to the value of the land considerably. The lands inside the port perimeter are follow the demands of the shipping lines to keep them interested in the port. By usually rented to port concessionaires (e.g. terminal operators) and other businesses emergence of Ultra Large Container Vessels, the waste and idleness of the terminal for commercial use. The value of the land also rises in the neighborhood of the port resources is also exacerbated. Among the instances for this, we can point to wastage of area as businesses and industries locate themselves in the adjacency to benefit the berths, heightening of the peaks and troughs in the workloads of terminal operations, advantages provided. This also brings population centers to the vicinity of the port worsening of schedule reliability issues, increase of the risk and the needed time in and all these facts contribute towards adding to the value of land as a consequence of marine operations, and so on. In this context, the shipping lines generally always port development. Good instances can be sought in the added value of lands in mega demand for better services with lower costs. In the microeconomic level, satisfying port like Jebel Ali port (a former fishing village) and Singapore port (islands formerly such demands is a constant challenge for the terminal operators throughout the world. characterized by wetlands). Ports also provide services that generate added value in the trade flows. These include: • Receiving goods, breaking shipments, preparing for shipment, returning empty packaging • Simple storage, distribution, order picking • customizing, adding parts and manuals • Assembly, repair, reverse logistics • Quality control, testing of products • Installing and instruction • Product training on customer’s premises The Value Added Logistics services not only provide the ports with extra revenue streams and employment opportunities, but they also attract more trade by integration of further links in the value chain to the port. The formation of value-added logistics clusters in ports not only supports and boosts the trade facilitation level in ports, but also provides the port with flourishing revenues and employment. The instances can be seen in Singapore, Jebel Ali, and the Korean and Japanese ports. In some parts of the world, the port also allows the manufacturing industries to enter into port areas. These industries locate themselves in the port area (or its adjacency) to benefit the advantages of the port. These may include speedy and cost-effective delivery of imports and exports (e.g. goods, raw materials, supplies, machinery, etc.), enjoying the value added logistics services, utilization of natural resources (e.g. water supplies), financial incentives, legal exemptions, and so on. These industries bring more resources, capabilities, trade, revenue, employment and population to the port. Instances of this are best seen in ports like Antwerp, Rotterdam, Shanghai, Kaohsiung, and many others. Volume.10 / Sep 2018 Volume.10 / Sep 2018 The Role of Ports in Economic Development Apparently according to our discussions, beside the essential contribution of ports Payam Darya Payam Darya

18 19 Articel

to trade facilitation in the national and regional levels, they also act as significant The firms in the port businesses are organized to serve the freight flows that enter the port (from contributors to local and national economy by employment, business development, either sea or land). They gain their business revenues by supplying such demanded services revenue making, tax payments, and enhancement of welfare. in the port. The services may vary from port to port, but they mostly fall under the following There are several models to explain and assess the contributions to the national table’s categorization. The list can be elaborated to several other kinds of charges and dues by economy. The contributions are usually considered in form of employment, personal referring to the tariff books of other ports. These charges and dues provide great stable revenue income, revenue, investments, turn over, facilitation of export, value added, and tax. streams for ports. The terminal industry usually provide above 20% profitability, which is The following exhibit indicates a scheme of the economic model acknowledged by quite remarkable in the transportation sector. the American Association of Ports and Harbors (AAPH).

Table2- Cargo and Passenger Handling Terms Seaport Activity Value of Imports/Exports ( Source : New York Shipping Association Inc.,2010)

•Waterside Services: •Loading and Discharging Business Revenue Related User Output –Stevedoring –Clerking and Checking –Watching/Security –Cleaning/Fitting Payroll Retained Earnings, Local Purchases Related User –Equipment Management, Maintenance Dividends & Investments Personal Income and Leasing •Storage at the Maritime Terminals Direct Jobs Re-spending Induced Indirect Jobs Related –Wharfage -- the fee against the cargo Jobs User Jobs that is discharged (or crosses the wharf) from the vessel while at dock. Wharfage fees may be flat rates applied on a per State & Local Taxes ton basis or a commodity specific rate such as $45 per auto driven off a roll- on, roll-off (RO/RO) vessel. Flows of Economic Impacts through the Economy (Source: AAPH(2016)) –Yard Handling –Demurrage – the fee associated with –Tugs storing cargo at the terminal beyond In this model, the economic contributions of the port come from business revenues, –Pilots – navigation experts who board the vessel the time specified in the transportation to facilitate travel and calling within the harbor and jobs, personal income, and tax. In this sense, we will review the reported figures for arrangements. channels. UK, and US ports at each pace. The reports have been published by AAPH in United –Warehousing –Line Handling – the port fee that covers the labor –Auto and Truck Storage States and Centre for Economics and Business Research (CEBR) in United Kingdom. costs associated with tying up or releasing the –Bulk Storage The author would like to notice that the methodologies of assessment and reporting mooring lines from a vessel. –Refrigerated Storage the economic impacts of ports in these countries have some discrepancies, and the –Launch – the fee associated with the use of launches •Cargo Packing figures are only given to provide the reader with a rough sense of the magnitude of to transport pilots, other personnel or supplies to or –Export Packing such impacts. The reporting has been done based on the performance of US ports and from a vessel. –Container Stuffing/Stripping UK ports in 2014 and 2015 respectively. –Radio/Radar – the fees associated with radio and radar use and equipment. –Cargo Manipulation/Lashing – –Surveyors – the fees associated with insurance activities that include strapping, Table 1 - Number of ports and split of handled Cargoes in the years of study reviews of the vessel. blocking and arranging the cargo to (CBER(2017), AAPH(2016), UK Department of Transport (2016)) –Dockage – the fees assessed a vessel to offset the minimize shifting and damage during transit. Total Cargo Export Domestic use of the docking facility. Volume.10 / Sep 2018 Volume.10 / Sep 2018 Number of Import Cargo Handled Cargo (MM Cargo (MM –Lighterage – the expenditures associated with Ports (MM Tons) (MM Tons) Tons) Tons) offloading or loading cargo from a smaller vessel to the vessel. •Government Services UK Ports 188 496.7 285 152 59.7 –Customs and Inspection (including (2015) agriculture) US Ports –Entrance/Clearance/Immigration 149 2590.17 688 633 1269.40 Payam Darya Payam Darya (2014) –Quarantine –Security 20 21 Articel

Table 5- Induced Impact of Ports on the economy of United Kingdom and United States By reliance on their revenues, the port firms employ people, provide the dividends ( AAPH(2016), and CBER(2017)) to stockholders, make investments in their businesses, lessen their liabilities, and Tax (Indirect procure the needed goods and services to maintain their business activities. This Employment Personal Income GDP/GVA + Induced) (Jobs) (MM USD) (MM USD) revenue stream and the employment, personal income, and tax provided by it, (MM USD) establish the direct impact of port to national economy. Table 3 gives the estimated UK Ports direct economic impacts of UK and US ports as reported by CBER and AAPH. 276,000 3234.95 23267.3 .. (2015) US Ports (2014) 822,884 99,922 99,922 32,829 Table 3- Direct Impact of Ports on the economy of United Kingdom and United States ( AAPH(2016), and CBER(2017)) The AAPH report goes one step further and estimates abovementioned quantities Employment Personal Income GDP/GVA (MM Tax (MM for the American exporters and importers who use US ports. Although one might (Jobs) (MM USD) USD) USD) argue that the sustenance and survival of these businesses and their supply chains UK Ports depends on the functions of the port, others may find it exaggerating in some ways. 101,000 2159 (2015) 5,347 11,104 The estimated figures for economic impact of these parties in US ports are given in US Ports table 6. 541,946 8197 (2014) 29,115 124,449 Note: CBER argues that it uses the Gross Value Added (GVA) to eliminate the effect of Table 6- Impact of Importers and Exporters of Ports on the economy of United States subsidies and product taxes from GDP, and defined GVA as : GVA + Taxes on products - ( AAPH(2016)) Subsidies on products = GDP). Tax Employment Personal Income GDP (MM (Jobs) (MM USD) (MM USD) The port firms spend a significant amount of their revenue to purchase the goods USD) and services needed to maintain their business activities. These spends provide the US Ports 21,380,000 grounds for development of many other depending businesses that in turn contribute (2014) 1,000,315 4,332,733 to the economy by their own employments, investments, personal incomes, and tax payments. The economic impacts in these second-tier firms that are dependent on By combination of the direct, indirect and induced impacts, one can achieve an port firms constitute the indirect impacts of ports on national economy. The estimates aggregate measure of port’s economic impact in each contribution category. Table 7 for indirect economic impacts of ports in UK and US have been reported as below. gives the calculated multiplier for each impact category in UK ports. These multiplier coefficients can represent the proliferating contribution of the production factors to Table 4- Indirect Impact of Ports on the economy of United Kingdom and United States the entirety of national economy. For instance the data in table 8 implies that by ( AAPH(2016), and CBER(2017)) creating each one job in the UK ports, more than 3 indirect jobs has been created Tax among the suppliers of goods and services to the port firms, and this has further Personal Income GDP/GVA (Indirect + Induced) (MM USD) (MM USD) supported the generation of near to 3 other induced jobs in the society. In result, (MM USD) one can say that each employment opportunity in the port will support around 6 UK Ports 319000 3816.45 23267.25 .. employment opportunities outside the port. (2015) US Ports 16678 99922 32829 (2014) 322,017 Table 7-Aggregate Impact of Ports on the economy of United Kingdom (CBER(2017))

Employment Personal Income GVA The employees in the port firms and those from the port-dependent firms spend most of their income in the state’s markets to provide the livelihood of their households. Indirect Moreover the relying firms on the port (e.g. the forwarders, the manufacturers, the 3.16 0.70 1.10 Multiplier

haulers, the railway companies) make many purchases in the local and national Volume.10 / Sep 2018 Volume.10 / Sep 2018 markets. These spendings support the revenue streams, employment, personal income Induced flows, and tax payments in a third tier of firms throughout the local and national Impact 2.73 0.61 1.06 Multiplier markets and engender a third level of economic contribution that is acknowledged as induced economic impacts of the port. Table 4 contains the estimates of CBER and Aggregate Impact 6.89 2.31 3.15 AAPH for the induced economic impacts of the UK and US port. Multiplier Payam Darya Payam Darya

22 23 Articel

The resultant economic impacts of the ports in national level can be estimated by References incorporating the direct, indirect, and induced impact in each category in a lump- * American Association of Ports and Harbors (AAPH)Website . U.S. PORT RANKING BY CARGO VOLUME 2014.(Last Visited 5 August 2017) sum aggregate figure. AAPH also assimilates the exporters/importers impacts in each * International Trade Center Website – Statistic Pages ( Last Visited 15 August 2018) category. Table 7 presents the aggregate economic impacts of US and UK ports as * Khan S. , Perez,A. (2016) . EventWatch® 2016 Annual Report . Resilnic Inc.. California . USA. * Limao,N. , Venables A.J. (2000). Infrastructure, Geographical Disadvantage, and. Transport Costs reported by AAPH and CBER. .The World Bank. Washington DC. United States * Martin Associates Inc.(2016) . The 2014 national economic impact of the U.S. coastal port system . Reported to American Association of Port Authorities. Table 8-Aggregate Impact of Ports on the economy of United Kingdom and United States * National Bank of Belgium (2017). NBB Working Paper No 321 - Document Series: Economic ( AAPH(2016), and CBER(2017)) importance of the Belgian ports: Flemish maritime ports, Liège port complex and the port of Brussels - Report 2015. Personal Employment GDP/GVA Tax * New York Shipping Association (2011). The Economic Impact of the New York-New Jersey Port/ Income Maritime Industry 2010. (Jobs) (MM USD) (MM USD) (MM USD) * Radelet,S., Sachs,J. (1998). Shipping Costs, Manufactured Exports and Economic Growth . Harvard Institute for International Development. The World Bank. Washington DC. United States

UK Ports (2015) 695,000 2,159 * Rodrigue, J.P. (2011). Stanley D. Brunn Intermodal Terminals, Mega Ports and Mega Logistics . 12,398 34,993 In (Eds) . Engineering Earth: The Impacts of Megaengineering Projects . (pp.851-866) . Springer. * Rodrigue, J.P., Comtois, C. and Slack, B. (2017). The Geography of Transport Systems . New York.

US Ports (2014) 1,686,847 41,026 United States. Routledge. 145,715 224,371 * UK Department of Transport (2016) UK Port Freight Statistics:2015 . London * UK Office for National Statistics (2016) - UK Labour Market Statistical Bulletin: January 2016. US Ports - * UNCTAD’s Website – Statistic Pages ( Last Visited 18 August 2018) Exporters/ * The World Bank (2017) . World Development Indicators :The Gross Domestic Production Data for 23,066,847 321,082 Importers impact 1,146,030 4,557,104 All Countries between 1965 and 2016 (Downloaded on 8/2/2017) * CBER Ltd. (2017). The economic contribution of the UK ports industry : A Report to Maritime UK included (2014) . London.

By incorporating the estimates of exporters and importers into the aggregate economic impact constructs, the results astoundingly increase by 1267% in terms of employment, 686% in terms of personal income, 1931% in terms of GDP contribution, and 683% in terms of taxes. Nearly in all parts of the world, the studies concerning the economic impacts of ports signify the enormous size of such impacts on the entirety of the national economies. For instance, the CEBR report indicates that the UK ports has supported 2.21% of national employment and generated a volume of 224.4 Billion USD of Gross Value Added that is equivalent to 7.84% of GDP in the national level in 2015. Similarly the AAPH report suggests that in 2014 the economic output of cargo flow through the US ports has provided a value of 4.6 Trillion Dollars to the national economy (equivalent to 26.2% of United States’ GDP in the same year) and supported 15.64% of employment in the national level. These interpretations strongly explicate that the economic role of ports is not restricted to trade facilitation, and the port itself acts as an engine that boosts the economic growth. By reviewing our discussions, we can say that the port is a dynamic, complex, and inevitable part of the transportation system that has determining effects on the economic life of the nations. Yet, the people, the policymakers, and even the port firms are less aware of the economic roles, capacities, and impacts of the ports. Developing and enriching this kind of understanding is the requisite condition to augment the needed mindset for transforming into a maritime nation. If not, the nation will not Volume.10 / Sep 2018 Volume.10 / Sep 2018 be able to develop her needed maritime advantages and will lose several precious development opportunities in a fast-paced globalized world. Payam Darya Payam Darya

24 25 Report

A Glance at Straits, Channels and Economic Corridors

Peter Sand, Chief Shipping An- assets are better utilised with alyst at BIMCO says: Naturally the canals in place, but make no A strait is a naturally formed, narrow, typically navigable the channels and straits serve mistake, it’s very costly to pass waterway that connects two larger bodies of water. Most the purpose of bringing the car- through a canal – almost as ex- commonly it is a channel of water that lies between two land go to the costumers faster than pensive as a round-tour devia- masses. it would otherwise without it. In Straits are significant in terms of commercially and tion. strategically due to three reasons, first, seaborne trade for particular man-made channels From a risk perspective all commercial shipping, second, vital oil producing region like Suez and Panama are vital channels and straits – natural and third to play a colorful role in geo-politics. for the industry and its custom- or man-made represent a threat. ers today. Without them the They are all choke-points on Volume.10 / Sep 2018 Volume.10 / Sep 2018 trade lanes would be different vital shipping trading lanes – it – and surely sailing distances goes for Suez, Panama, Hor- would be much longer. muz, Singapore Strait, Bospo- From an economic perspective, rus etc. Payam Darya Payam Darya

26 27 Report

traffic traversing through this ic chokepoint and a main artery Major Straits Of The World major sea lane. for the transport of oil from the The other important point is that Middle East. Iran and Oman Name Joins Location more than 80% of the oil that are the countries nearest to the Malacca Strait Andaman Sea & South China Sea Indonesia - Malaysia arrives to China by sea travels Strait of Hormuz and share ter- through the Strait of Malacc. ritorial rights over the waters. Hormuz strait Gulf of Persia & Gulf of Oman Oman-Iran This creates a security issue Suez Canal is an artificial sea- Palk Strait Palk Bay & Bay of Bengal India-Sri Lanka for China as the Straits func- level waterway located in Egypt tion as a strategic ‘chokepoint‘ and connects the Mediterranean Sunda Strait Java Sea & Indian Ocean Indonesia through which China’s energy Sea with the Gulf of Suez, a Yucatan Strait Gulf of Mexico and Carribbean Sea Mexico-Cuba supply must pass. Essentially, northern branch of the Red Sea. Mesina Strait Mediterranean Sea Italy-Sicily whoever controls the Straits of Suez Canal which officially Malacca has the ability to heav- opened in 1869, is one of the Otranto Strait Adriatic Sea & Ionian Sea Italy-Albania ily disrupt a vital energy corri- most heavily used shipping Bab-el-Mandeb Strait Red Sea & Gulf of Aden Yemen-Djibouti dor to China. There is no shred routes in the world, witnessing Cook Strait South Pacific Ocean New Zealand (N & S islands) of doubt that the government of the passage of thousands of ves- China is aware of its energy de- sels every year. Mozambique Strait Indian Ocean Mozambique - Malagassy More than 80% of pendence and the vulnerability the oil that arrives to The canal, which connects Asia North Channel Irish Sea & Atlantic Ocean Ireland-England of this supply. China by sea travels with European and American Taurus Strait Arafura Sea & Gulf of Papua Papua New Guinea - Australia Oil shipments through the Strait economies, offers a shortest of Malacca can supply two of through the Strait of maritime route between Eu- Bass strait Tasman Sea & South Sea Australia the world’s fastest growing Malacc. rope and the regions that share Bering Strait Bering Sea & Chuksi Sea Alaska-Russia economies, China and Indone- Oil shipments a border with the Indian Ocean sia. In the recent years, crude and the Western Pacific Ocean. Bonne-Fasio Strait Mediterranean Sea Corsika-Sardinia through the Strait oil has taken between 85% and of Malacca can The canal also connects the Port Bosporous Strait Black Sea and Marmara Sea Turkey 90% share of annual total pe- supply two of the Said in northeast Egypt with troleum which passes through Port Tewfik at the city of Suez Dardenleez Strait Marmara Sea and Agean Sea Turkey world’s fastest Strait of Malacca. in the south. Davis strait Baffin Bay & Atlantic Ocean Greenland-Canada The Strait of Malacca is also a growing economies, It is important to say that that it Denmark strait North Atlantic and Arctic Ocean Greenland-Iceland significant transit route for liq- China and reduces the distance between Eu- Dover strait English Channel & North Sea England-France uefied natural gas (LNG) from Indonesia. rope and the Far East by a third. Persian Gulf and African sup- The head of the Suez Canal Au- Florida Strait Gulf of Mexico and Atlantic Ocean USA-Cuba pliers, particularly Qatar, to thority (SCA), Mohab Mamish, Hudson strait Gulf of Hudson & Atlantic Ocean Canada East Asian countries with up- announced that the revenues of Gibraltar Strait Mediterranean Sea & Atlantic Ocean Spain-Morocco ward trend of LNG demand. the Suez Canal registered a his- The Strait of Hormuz which toric annual record, pushing up Magellan strait Pacific and South Atlantic Ocean Chile is known as a “chokepoint, is by 16.7 percent at most times Makkassar Strait Java Sea & Celebeze Sea Indonesia among one of seven extremely throughout 2018 in comparison narrow water corridors that big with last year. Tsungaru Strait Japan Sea and Pacific Ocean Japan (Hokkaido-Honshu island) ships tend to use as shortcuts. The world’s largest container Tatar Strait Japan Sea & Okhotsk Sea Russia (E Russia-Sakhalin Island) Strait of Hormuz provides the ship, the 400-meter long OOCL advantage of cost and time be overlooked that since choke- Hong Kong, passed through Volume.10 / Sep 2018 Volume.10 / Sep 2018 saving, so that it is faster and points are surrounded by land, the Suez Canal carrying 21,400 The Strait of Malacca is the the Strait of Hormuz, the busi- dia, China, Japan, South Korea longest strait in the world and est water corridor is the Strait of and ASEAN with the rest of the cheaper to travel from the Mid- they are vulnerable to regional containers in 2017. Given that from an economic and strategic Malacca. world. The remarkable growth dle East to Europe through the and national politics, so, they canal is responsible for eight perspective, it is considered as This connects the Indian Ocean in international trade has Suez Canal (another choke- are as risky as they are useful. percent of global sea-borne one of the most important ship- to the Pacific Ocean, linking the brought about similar increase point) than by circling Africa, This strait is of great signifi- trade annually, it plays a sig- for example. But it should not cance, because it is a geograph- nificant role in the growth of

ping lanes in the world. After major Asian economies of In- in the volume of commercial Payam Darya Payam Darya

28 29 Report

Egypt’s economy. It is impor- the port, the Nieuwe Waterweg to stimulate economic develop- dors and other infrastructural From Azerbaijan, by means tant to highlight that the Suez and the Botlek needed to be ment. They may be developed projects featuring land-sea-air of the Caspian ferries (Baku – Canal generated revenue of deepened by one and a half me- within a country or between transportation routes among Turkmenbashi, Baku – Aktau), $5.3 billion in 2017. tres along a distance of twenty- countries. Corridors exist different countries and even One consequence the TRACECA route reaches In the book of THOSE WHO five kilometres. The start of the in Asia, Africa and other areas. different continents, is a para- of closing political the railway networks of the Cen- MADE THE HISTORY OF dredging work for the deepen- Economic corridors often mount move in modern society. tral Asian states of Turkmeni- and economic THE CANAL has come: Be- ing project was launched in feature integrated infrastruc- The Rotterdam/Antwerp–Ge- stan and Kazakhstan. The trans- tween 1975 and 2015, the ca- March 2018. ture, such as highways, rail- noa corridor is one of the most links between the port networks of these states nal was considerably widened, To maintain the vitality of the roads and ports, and may link significant routes for freight countries of Europe are connected to destinations deepened, and modernized. It Rotterdam port industry, in- cities or countries. They are traffic in Europe and this is why of is the huge in Uzbekistan, Kyrgyzstan, became one of the main sources vestment in its conservation meant to provide two impor- it is currently being expanded. volumes of goods Tajikistan, and reach the bor- of foreign exchange for Egypt, and renewal is essential. In the tant inputs for competitiveness: The New Rail Link through the move through the ders of China and Afghanistan. which, in 2015, launched a new long term, the port will need to lower distribution costs and Alps (NRLA), which includes continent across China is now building six eco- pharaonic project: doubling the be prepared for the transition high-quality real estate. the Lötschberg and Gotthard nomic corridors, namely the canal and building a vast indus- from a linear, fossil fuel-based Establishing an economic cor- base tunnels, forms part of this different national New Euroasian Continental trial and urban zone intended economy to a circular biofuel- ridor, then, is a holistic strategy corridor. borders. Bridge, the China-Mongolia- to draw millions of inhabitants. based economy. An economy in that improves and enhances in- One consequence of closing Russia Corridor, the China- That is the Egypt of the future which materials and raw mate- vestments in transport, energy, political and economic links Central Asia-West Asia Cor- that the visitor discovers, be- rials from vegetable-based ori- and telecommunications in the between the countries of Eu- ridor, the China-Indochina fore dreaming again of grand gins are created and renewable region. A highly efficient trans- rope of is the huge volumes of Peninsula Corridor, the China- journeys. organic sources are recycled for port system means goods and goods move through the con- Pakistan Corridor and the Ban- The Nieuwe Waterweg is a ship as long as possible whilst main- people move around the region tinent across different national gladesh-China-India-Myanmar canal in the Netherlands from taining their quality. The Botlek without excessive cost or delay. borders. The plan is for most of Corridor. het Scheur west of the town is able to play a key role in this This improvement promotes these goods to be transported on These corridors, which connect of Maassluis to the North Sea transition. further economic growth and nine rail freight corridors that most of the countries and re- at Hook of Holland. Nieuwe According a general definition regional development, thus have been identified by the Eu- gions along the Belt and Road, Waterweg Witnesses the com- of economic corridors, they are contributing to poverty reduc- ropean Union. These corridors are of great significance to the muting of more than 15,000 considered as integrated net- tion. (ADB 2008). are currently being developed success of the initiative. Eco- sea-going vessels annually. To works of infrastructure within It can be asserted that the con- and expanded. nomic corridors will not only create optimum accessibility to a geographical area designed struction of economic corri- The two main sea routes are shorten trade distances and fa- through the Suez Canal be- cilitate international business, tween the Eastern Mediterra- route or trade corridor is the but also accelerate economic nean Sea and the Red Sea, and blood-line of intellectual and integration and globalization. around the Cape of Good Hope economic developments.” Dr. For instance, Chinese invest- at the southern end of Africa. Hsuan Feng believes. ment only ranked 16th in Paki- Currently there are more cor- Moreover, the transport cor- stan before the construction of ridors under development: ridor TRACECA is the renais- the corridor, but now China has the European Union-initiated sance of the Great Silk Road become the largest investor in TRASECA lines into Central (Silk Road). The corridor starts the country after the construc- Asia; the North-South Cor- in the Eastern Europe (Bul- tion of China-Pakistan Eco- ridor, a combined sea and rail garia, Rumania, Ukraine) and nomic corridor. route from India through Iran also crosses Turkey. There are While China is the major player, Volume.10 / Sep 2018 Volume.10 / Sep 2018 and into Russia; and the revived routes passing the Black Sea to the importance of linking trade Silk Road, or second Eurasian the ports of Poti and Batumi in and facilitating intra-country Land Bridge, which Russian Georgia, further using transport and intra continent economic rail experts call the Trans-Asian networks of the Southern Cau- integration cannot be ignored Mainline (TAM). casus, and a land connection to- when studying trade corridors “Throughout history, trade wards this region from Turkey. in the region. Payam Darya Payam Darya

30 31 Report

worldwide, making the oceans, Goal behind the Canals’ seas and rivers of the world Expansion; Easily Coped with an essential part of the supply the 21th Century Ships chain of many businesses. Given growing trade between East and West following the Major Canals Connecting East manufacturing in the East and to the West: a growing middle-class in Asia Suez Canal with a demand for Western Located in Egypt, it officially goods, there has been a sharp opened in November 1869 increase in the number of aiming at connecting the vessels navigating these two Mediterranean Sea to the Red major canals. This progress in Sea. One of the world’s most shipments has caused delays, heavily used shipping lanes, the although, at the same time, there Suez Canal provides the shortest has been a dramatic increase in maritime route between Europe the size of the new ships being and the lands lying around the built, to the extent that many are Indian and western Pacific too large to navigate the canals. oceans. This 120 mile (193km) As such, steps have been stretch of water allows ships taken to improve these pivotal to travel between Europe and shipping channels to deal with Nicaragua; South Asia without navigating the increased demand, through around Africa, reducing the sea the largest expansion projects voyage distance by about 4,300 on both the Suez and Panama miles equals to 7,000km. canals. competitor of Construction procedure in the Panama Canal Suez Canal was undertaken to Opened in August 1914, the develop a new channel parallel Panama Canal allows the to the original one to allow Panama and possibility of connection larger ship to pass through it. between the Atlantic Ocean to When the new 22 mile stretch the Pacific Ocean and serves of channel opened in August more than 144 of the world’s 2015, the ‘New Suez Canal’ Suez Canals trade routes. This 48 mile as it was given a new name, (77km) stretch of waterway doubled the daily capacity of provides vessels to avoid By: Sarah Zeinalzadeh the canal and more than halved the lengthy Cape Horn route waiting times, whilst deepening around the southernmost tip of of the main waterway allowed South America, where strong for larger ships to navigate the winds, strong currents, large canal. The Shipment of commodities by sea can take several weeks and even sometimes more. The Shipping trade routes have waves and Icebergs make these Moreover, the Panama Canal construction of manmade waterways, which has had an important impact of increasing the played a crucial role throughout some of the most treacherous expansion, which opened in June efficiency of this invaluable industry altered the transportation section. Considering the benefits history encouraging countries waters in the world to navigate. 2016, has formed a new lane of to build their trade in everything The Panama Canal, which takes Volume.10 / Sep 2018 Volume.10 / Sep 2018 they carry, charges paid for the construction would be neutralized. By cutting new, more direct traffic along the canal through routes through land, the construction of canals shortens shipping routes. The great advantage from variety of things including between 6 to 8 hours for ships the construction of a new set of of this measure is time and operating costs which are saved. Consequently, exploiting quicker spices, electronics, and cars to transit bring about a reduced locks, doubling the waterway’s transits, major commercial centers are serviced in a less amount of time, enabling ships to be to clothing. Presently, Over route from the Far East to the capacity. The expansion of the used for additional sailings per year. These additional sailings mean more frequent shipping 90% of all products made and US East Coast of around 3,000 canal has enabled the passage schedules, with the capability of more goods being traded on a global scale. sold are transported by ship miles equals to 4828km. of vessels that can carry up Payam Darya Payam Darya

32 33 Report

that the Suez is actually more most revenue for the country. canal through Nicaragua. cost effective when fuel prices Besides, seaports of the canal Three times as long and almost are low. However, if fuel is are being developed and twice as deep as its competitor expensive, the Panama Canal the government at the same in Panama, Nicaragua’s canal becomes the more attractive time will improve Nile as the will require the removal of proposition due to its shorter strategic trade route. more than 4.5bn cubic metres distance. of earth. With the dimensions Despite the expansion of the Will the competition be more of each of the locks’ chambers Panama Canal, it is still not challenging? planned to be 520 m (1,706 ft) capable of handling the largest A New Canal? long, 75 m (246 ft) wide, and of the container shipping Determining the economic 27.6 m (91 ft) sill depth, the vessels and the Suez Canal is advantages that can be gained Nicaragua Canal is being still capable of accommodating from operating an international designed to allow transit for larger ships than Panama. shipping lane, the Nicaraguan larger ships than those that pass It is worthy to have a look parliament has confirmed plans through the Panama Canal. To at the volume of cargo and for a Chinese company HKND show the differences in detail, performance of the Panama Group, headed by billionaire the new third set of locks in during the last year. This Canal Wang Jing, to build a 173-mile the Panama expansion are recorded 403.8 million ton in only be 427 m (1,401 ft) long, the fiscal year 2017 which was 55 m (180 ft) wide, and 18.3 m unprecedented during its 103 (60 ft) deep. years of history. The volume The new canal is supposed to of cargo handled in 2017 be completed in 2019. News demonstrate a growth of 22.2 that the project may not yet go percent in comparison to 2016 ahead will be encouraging to to 13,000/14,000 TEUs; The operation of a productive expansion appears to have which was directly in relation the competition. approximately three times the canal system has positive effects prompted a revised routing for to the moved cargo through A new Canal in A new Canal in Nicaragua size of the 5,000TEU, which the on the surrounding community. the shipping line as amongst the this waterway lane. In addition, could potentially have a previous locks could manage. Economic investment in the carriers that have committed Nicaragua could ships’ transit in terms of potentially have a damaging effect on the Panama expansion and development to commercial transit through number enjoyed an increase of Canal trade. Considering its Competition between Suez and of ports and supporting the new Panama Canal locks, 3.3 percent in 2017 and reached damaging effect on geographical position, the Panama canals infrastructure in countries Maersk have confirmed that 13,548 ships. the Panama Canal Nicaraguan canal would offer Considering the upward trend within the vicinity of the canal they will be operating a service Moreover, Panama Canal trade. Considering the capability to operate larger in international trade as well provide job opportunities with string through the canal. Authority announced that its geographical vessels in servicing similar as shipping companies that is definitely encouraging. Presently, the increased since the beginning of 2018 position, the ports. With Panama and Suez pay averagely £165,000 to When it comes to shipping, capacity at both canals has reservations have been already in competition, would £300,000 for a 4,500 TEU it seems that size really does increased choice for shipping increased from six to seven. Nicaraguan canal there be enough trade for all 3 vessels to manage the transit of matter. Due to the restrictions lines operating on East to West Through this step, the canal would offer the canals? Even if so, would the their vessels from the world’s on the size of ships capable of trade routes. Therefore, the could be host of more capacities capability to operate additional competition decrease busiest shipping lanes, it is passing through the Panama factors that determine how they in the new locks. Also, far larger vessels in income from toll fees? If this no surprise that the Suez and Canal prior to expansion, decide which route is more from the 23 ships which was were the case, it could spell Panama Canal operators are Danish Maersk company took cost effective are investigated. servicing similar considered to transit the water ports. With Panama good news for carriers in so eager to boost the fruitfulness the decision in 2013 to move Although ships utilizing the way, seven new transaction of far that it could push down of their channels. In line with all shipments to the Suez Canal Suez canal from Asia to US post-panamaxes recorded. and Suez already in shipping charges – But would Volume.10 / Sep 2018 Volume.10 / Sep 2018 this, investment on both canals as it worked out more cost navigate a distance of an On the other side of the coin, competition, would this mean less investment in has been attracted to enhance effective to put 1 x 9,000 TEU additional 5% to those utilizing the Suez Canal witnessed 18 there be enough future on these integral transit operating capabilities and to through Suez as opposed to 2 x the Panama Canal, the distinct thousand ships and 1million trade for all 3 routes? This definitely remains obtain a competitive edge over 4,500 TEU through Panama. variance in the toll charges ton cargo during the last year. canals? an open question and the market the other. However, the Panama Canal between the two canals means The canal brought about the should wait for the future. Payam Darya Payam Darya

34 35 Report

companies. Shipping’s revenues such as developing fisheries, is calculated based on cost from providing required measures origin to destination. The cost and services of the ships and includes personnel salary, ship local guidance that give rise to Speed to hasten age, crew foodstuffs, fuel and employment in those regions. other related port costs. These In some parts of the world, costs are calculated by ship natural circumstances let the owners, a percent of profit for marine routes to be shorten and cost to carrying added to this and the through digging canals and finalized cost is announced to make a connection between the cargo owner. Therefore, the two points. However, ships are distance being short or long is to pay costs to transit the canals, decrease; crucial for the owners because their finalized cost decrease by in the case of long distances, one third. For instance, Kiel the owner has to pay more and Canal has been created in the consequently the consumer has north of Germany through Achievement of to pay more too. Here is the role land drilling which lesson the of canals and straits that shorten distance between Adriatic Sea the routes and decrease the cost and the North Sea. Besides, the International effectively. Suez Canal which launched Another properties of the in 1869 shrank Europe- Asia canals and straits is the safety distance by 900 kilometer. In of ships crossing them due to other words, the distance from Canals seasonal and monsoon storms. Adan to Strait of Gibraltar Moreover, from the legal through Cape of Good Hope perspective there are national was 16002 kilometers, which By: Narges Ehsandar regulations and international decreased to 6940 through the rules governing them. Suez Canal. Moreover, Panama Meanwhile, the operator of the Canal located in the western canal is the country in which hemisphere with 82 kilometer the canal created. International long made the shipping between rules such ad marine traffic have pacific and Atlantic possible to apply through the canals. in a way that ships no longer However considering the aim had to transit through South of the country to gain profit America. In this situation, the by creating the canals, transit common route of shipping rule of the ships from domestic between New York cities and waters have to be beneficial. San Francisco which was 22500 In other words, all ships are kilometers lessoned to 9500 capable of crossing the created kilometers through the Panama Considering more than canal unless a tension exists Canal. In the past, ships aiming An international canal is a general term that includes global straits and locks. Canals are locks, 90 percent of the global between two countries and then to cross the Pacific ocean had which separate dry lands and join waters. The difference between strait and lock is defined in transportation which is achieved the operator one limit accessing to go around the South America terms of how they are created which for the first one it is originated naturally and the latter through sea, massive volume of in some specific cases. The Volume.10 / Sep 2018 Volume.10 / Sep 2018 but after the completion of the one through digging artificially to shorten the marine routes. More than 100 inter-oceanic heavy commodities are shipped operator country receive transit Canal they directly go to the straits and locks exist worldwide among which Hormoz Strait, Suez Canal, Bosporus Strait, by ships to the world. fees from ships on the basis of U.S from Europe and to the Dardanelles Strait, Strait of Gibraltar and Malaca play a pivatol role in international realms Doubtless, cargo carrying their size and type. In addition Eastern Asia. Averagely, it takes in term of economy, military, energy transport, cargo carrying and passenger transfer. In line brings about cost for the owners to this kind of revenue, canals 8/10 hours for a ship to pass the with this, countries highly invest to control or create canals and occasionally costal nations and and revenue for the shipping have other sources of income canal during which crew can Payam Darya Payam Darya marine powers face conflicts over determining the sovereignty.

36 37 Report

The aims and reasons for the meters of water per year are construction of the Volga-Don used for shipping, 160 million canal were creating a deep cubic meters of are applied waterway between the Volga to agricultural irrigation and and Dan River to reach the supply of freshwater cities and Black Sea. Besides, irrigation villages next to the canal are all of agricultural lands in of provided through the canal. In Volgograd and Rostov, electric the mid-1990s, to preserve the power generation, development locks and water facilities along of transportation infrastructure with ensuring the security of in southern Russia such as the shipping, Volga-Don canal construction of ports, docks, repair, renovation and technical the railway station and the equipping started. new regions were of utmost The Volga-Don is an important importance. Moreover, creating loop of deep waters in the the reservoir in the downstream European part of Russia and part of the Dan River, along is currently a supplier of cargo with the preparation of the transit in the southern Russian Volga-Canal had been taken waterways located in the into consideration. The required international shipping corridor shipping space for ships to berth of the north to the south. The was exploited that includes two canal also plays a carry a accommodations (Nos. 14 and pivotal role in transporting 15), downstream and upstream cargoes within the Azov-Volga- access canals and earth dams. Don Astrakhan region. Meanwhile, power plant of The large Hangzhou canal is shipping canal of the Volga-Don China’s longest lock made by is the best and the most difficult human hands as well as the accessing rout of Russia to the largest canal in ancient China. surrounding seas. Since its entry This canal is an important tourist into the maritime system, it has destination that is navigable become a connecting waterway and plays a significant role in enjoy the most beautiful and resources. in south of Volga and ends in from the northern seas to the China’s transport and trade in modern engineering designing. Volga–Don Canal which Tsimly Onsk Reservoir in Don southern seas. addition to carrying positive Panama’s Canal Tonnage connects Volga River in the River. The canal owns 13 pier This canal has halved the environmental impacts on its Increases 22.2% in Fiscal Year Panama’s Canal Caspian Sea to Don in the for berthing, three pumping distance between the coastal adjacent areas. In line with this, 2018 compared to 2016 and Tonnage Increases closest point 101 kilometers shipping canals, three dams, areas of the Europe part of UNESCO has registered this 2017. The development of the long. This can officially opened 17 waterworks and two repair 22.2% in Fiscal Year Russia and connected it from canal in the World Heritage Panama Canal included the in June. The amount of prisoners and rescue waterworks. Nine the ports of the Baltic to the List. construction of new locks in the 2018 compared to who had an active role in this of them are located in the Black Sea ports. Therefore, human beings routes surrounding the Pacific 2016 and 2017. The project approximately reached declination surface which A state institution is responsible using their creative minds and and Atlantic Ocean, which development of the 100,000. are accommodated for ships for the authority of Volga- constructing artificial canals created the third traffic lane and Panama Canal included After the completion of with the maximum length of Don lock and shipping canal. and locks, provided valuable increased the cargo movement forming process, Volga–Don 88 meter and four are set in Annually, 10,000 ships pass services in terms of saving Volume.10 / Sep 2018 Volume.10 / Sep 2018 the construction of capacity twice. In addition, the known as the most important the Don River to admit ships through the canal and transport time and transporting goods at development of the channel led new locks in the routes communicative tool in river of 44 meters in length. The approximately 13 million tons an incredible speed from the to access to Pacific Ocean with surrounding the Pacific transportation system between determined capacity for ships among which 60 percent are north, south, east and west of the purpose of development and Atlantic the two rivers. This canal to pass through the canal is five oil and oil related products. the world. of marine canals and water starts from Sareptsky beaches thousands ton. In addition, 450 million cubic Payam Darya Payam Darya

38 39 Report

The strategic location is a lo- cation where its events have regional, continental or global reflections, and a point that can The Role of be used as the center of com- munication or the concentration of military forces and defense International fortifications.[15] The most im- portant indicators for assessing the strategic location of the sites are: Waterways 1. Having a communication po- sition, 2. The possession of valuable natural and economical re- in the Global sources, 3. Being next to international waterways or straits, 4. Placing between two or more Economy important areas, 5. Having a military position, Case Studies: Strait of Hormuz, Strait of( 6. Possessing maritime status )Malacca, Bab-el-Mandeb, and Suez Canal and access to free waters.[20] International straits and chan- nels have the potential to affect By: Meisam Mirzaei both the national and foreign policy of the countries, as well as the military and maritime strategies, and allow their coast- al countries to control the trips in them, so they have a strategic value.[15] International straits and chan- nels have communicational, political, security and economic functions. Their first function is the communicational function and the potential to establish commercial, economic, and military ties and transferring of passengers and goods between two places or on waterway. Volume.10 / Sep 2018 Volume.10 / Sep 2018 Straits have been the place to convey the commodities and to carry out economic relations of countries for a long time, thus played a significant role in the development of global trade. Payam Darya Payam Darya

40 41 Report

So, their economic function is Iran; the exit of the Strait is the also defined in this way, which region between the Rass Sheikh is a major part of growth in Massoud and Hengam Island.[19] world trade is accounted for The width of the Strait is at the transferring in them. shortest distance between the As the military and security Quayen Kabir and Larak Is- functions of the straits, these lands, 38 km, and at the longest waterways play an important distance between the two coun- role in the transfer of power, tries’ coast - from the Nakhle logistics, fleets of the countries, Nakhoda on the coast of Iran to and the policies of the countries the northern point of Al-Musan- about them can be a factor for dam, 90 km. Also in the eastern the loss of security and endan- boundary - between Rass Dabah gering the stability of a region. and Rass Alkouh - the width of The political functions of the the Strait is 96 km and in the straits are also related to their westward - between the port of communication, economic Bostaneh and the port of Dubai and geostrategic values. On - it is 150 km. In terms of depth, the other words, each of these the strait floor in the north and functions has a profound role south direction is not symmetri- in influencing national and for- cal, so that its sharp slope is on eign policy of the Strait coastal the south coast and the smooth countries and can be a power- slope is on the northern coast. ful tool for relations with other The deepest point is adjacent to countries and put them in a su- the southern coast of the country perior position. and the Oman, in which the way [21] Among the international straits of separate transportation plans the countries. rope, North America and other the channel of communication service of peace and stability of [5] and canals in glob, the most is located along this coastline. According to international areas. between many countries for the region and the world. The important and most influen- The depth of water from the centers, the Strait of Hormuz is In 2016, 18% of US oil imports commercial and economic ex- history of the post-Islamic rev- tial straits and waterways with west to the east increases. The the most important channel for were transferred from the Per- changes, and millions of barrels olution in Iran shows that the strategic, geostrategic and ge- average depth in the west of the the transportation of crude oil sian Gulf.[2] According to the of oil and its products and also Strait of Hormuz, with the rule opolitical roles are the Strait of Strait and in the Persian Gulf is and its products, with 17m bpd Lloyd’s List Intelligence, the tons of other commodities are of the Islamic Republic, has Hormuz, the Strait of Malacca, 25 meters and its deep sections in 2011, 16.8m bpd in 2012, U.S. Energy Information Ad- exported or imported through always been in the service of the Bab-el-Mandeb Strait and rarely exceed 73 meters.[15] 16.6m bpd in 2013, 16.9m ministration (EIA) estimated it per day, and the economy of peace and stability of the region the Suez Canal. This strait has been considered bpd in 2014, 17m bpd in 2015, that about 80% of the crude many countries in the world, in- and the world. a strategic point for South West and 18.5m bpd in 2016. About oil was sent to Asian markets cluding Europe West, America, Strait of Hormuz Asia and the world for a long 30% of the crude oil trade and through this strait, and the most East and South-East Asia, and Strait of Malacca The Strait of Hormuz is a nar- time. Historical studies show other liquids were transported important destinations of it are all Gulf states depend on its se- The Malacca Strait is one of the row curve shape channel that that in different periods before through the Strait of Hormuz China, Japan, India, South Ko- curity and openness. This strait most important strategic paths links the Persian Gulf to the In- and after Islam and also in the in 2015, which increased in rea and Singapore. In the ex- is in the control of Iran within in the world, supporting a ma- dian Ocean. This strait is a con- current period, Strait of Hormuz the following year.[7] In fact, port of LNG, Qatar exported the framework of international jor maritime trade between Eu- cavity connected from the north has a strategic importance and one-third of the world’s daily 3.7 trillion cubic feet through law, and the country is legally rope and Asia-Atlantic, which Volume.10 / Sep 2018 Volume.10 / Sep 2018 to Iran and from the south to the was the place of competition of crude oil traffic is taking place the Strait of Hormuz in 2016. and executively governed on it. has the volume of 50,000 ships Al-Musandam peninsula.[18] powers to dominate it and in the through the Strait of Hormuz According to the British Petro- The history of the post-Islamic annually.[6] The Strait covers The length of this Strait is 187 present time, this role has been as the strategic gate which con- leum (BP) in 2017, this volume revolution in Iran shows that about 500 miles north to south km. Its entry is marked with preserved and all The countries nects the Middle East oil pro- is more than 30% of the global the Strait of Hormuz, with the between Malaysia and the In- [7] two ridges: “Rass Dabah” and of the world are aware of its key ducers (West Asia) to the main trade of LNG. governance of the Islamic Re- donesian Sumatra Island and its “Rass Alkouh” on the coast of importance in the economies of markets in Asia, Oceania, Eu- In sum, the Strait of Hormuz is public, has always been in the water shares with three coun- Payam Darya Payam Darya

42 43 Report

tries: Malaysia, Singapore and Strait of Bab-el-Mandeb Indonesia.[3] In fact, the strait Bab-el-Mandeb Strait is 19 is located between Indonesia, miles in width and approxi- Malaysia and Singapore, con- The geographic mately 50 miles in length. Its necting the Indian Ocean to location of the Strait depth changes from 100 fath- oms (about 183 m) to 2 fathoms the South China Sea and the of Malacca and the Pacific Ocean. Malacca Strait (3.6 m) and 6 fathoms (about is the shortest seaway between statistics of the flow of 11 m) in the coastal cliff area. Persian Gulf oil suppliers and oil and non-oil products This strait locates on north from Asian markets, especially Chi- from it, as well as its Yemen to Djibouti and Soma- na, Japan, and South Korea.[8] role in international lia to the south, connecting the The length of the strait is about trade, indicate the Gulf of Aden to the Red Sea. 800 km, its width is between importance of this Bab-el-Mandeb is part of the 50 - 320 km (2.5 km at the nar- Mediterranean Sea route to the international waterway. rowest point) and its minimum Far East. The Perim Island di- depth is 23 meters (about 70 vides the Strait into two chan- feet). The Malacca is the long- nels: in west Dact-el-Mayun est strait of the world in inter- is 10 miles wide and 10 miles national navigation, and its pas- long, and in east Alexander’s sage can take about 20 hours.[6] Strait is 3.5 miles wide and 3 According to statistics, the total miles long.[4] crude oil and petroleum prod- Bab-el-Mandeb Strait controls uct flow from the Strait of Ma- access to the Suez Canal and lacca in 2011 was 14.5 m bpd world’s trade and 80% of Ja- the strategic route between m barrels to the south), and 4.8 Bab-el-Mandeb means cutting part of Pacific Ocean.[22] In (12.8 m barrels of crude and pan, South Korea and Taiwan the Indian Ocean and the Red m bpd in 2016 (2.8 m barrels off the direct flow of European introduction of this canal by 1.7 m barrels of products), 15.1 imports of oil are transferred Sea. Navigation in this strait to the north and 2 m barrels to and North African oil to Asian diverse sources, there are dif- [11] m bpd in 2012 (13.2 m barrels through the Strait of Malacca.[6] is limited to two channels for the south). 10% of the annual markets and preventing tankers ferent numbers for its length. [1] of crude and 1.9 m barrels of The geographic location of the inbound and outbound traffic. Western European oil is trans- from reaching the Suez Canal. Some mention the length of this products), 15.4 m bpd in 2013 Strait of Malacca and the statis- A significant amount of tanker ferred through this strait.[4] Driving tankers to move from waterway is 165 km, some say (13.3 m barrels of crude and 2.1 tics of the flow of oil and non- trips along narrow impassable Bab-el-Mandeb Strait is one of the alternate route, the Cape 166 km, and some others con- [20] m barrels of products), 15.5 m oil products from it, as well as channels).[6] Approximately 50 the three critical places allows of Good Hope, also increases sider it 168 km. bpd in 2014 (13.3 m barrels of its role in international trade, ships daily pass from the Strait access to Algeria, Tunisia, Lib- the time and shipping costs. In The idea of connecting the crude and 2.2 m barrels of prod- indicate the importance of this of Bab-el-Mandeb.[4] ya and Egypt through the Med- addition, oil flows to the south Mediterranean Sea to the Red ucts), 15.5 m bpd in 2015 (13.9 international waterway. According to statistics, the total iterranean to import 70% of from Europe and North Afri- Sea by the waterway at the m barrels of crude and 1.6 m If the Strait of Malacca is crude oil and petroleum product their wheat. In addition, 32% of ca cannot reach the markets of time of third Pharaoh formed barrels of products), and 16 m blocked, nearly half of the fleet flow from the Strait of Bab-el- potassium chloride in the world Asia in the long term through about 2000 BC, which dug the bpd in 2016 (14.6 m barrels of will be forced to land around Mandeb in 2011 was 3.3 m bpd - the most common fertilizer - the Suez Canal and Bab-el- first canal through one of the [1] [11] crude and 1.4 m barrels of prod- the Indonesian archipelago, (2 m barrels to the north and 1.3 is passed through this strait. Mandeb. branches of Nile River near the ucts). The level of liquid natu- including along the Straits of m barrels to the south), 3.6 m The traffic statistics in the Bab- Suez port, and the two seas con- ral gas (LNG) passing through Lombok, between the Bali and bpd in 2012 (2 m barrels to the el-Mandeb Strait indicate the Suez Canal nected to each other. This canal the Strait of Malacca was 2.8 Lombok Islands, or through the north and 1.6 m barrels to the importance of the strait for the The Suez Canal in the African was mended in the term of sec- trillion cubic feet in 2011, 3.5 Straits of Sunda between Java south), 3.8 m bpd in 2013 (2.1 various countries of the world. country of Egypt connects the ond Pharaoh (665-610 BC) but The closure of this Strait will two Mediterranean and Red after that, it was destroyed. As Volume.10 / Sep 2018 Volume.10 / Sep 2018 trillion cubic feet in 2012, 3.9 and Sumatra. These are the al- m barrels to the north and 1.7 m trillion cubic feet in 2013, 4.1 ternative routes. These alterna- barrels to the south), 4.3 m bpd be followed by serious conse- Sea, causing the separation of Achaemen Darioush the king trillion cubic feet in 2014, 3.6 tive routes reduce global trans- in 2014 (2.2 m barrels to the quences and will force the tank- Asia and Africa. This canal is of Iran conquered Egypt (522- trillion cubic feet in 2015, and portation capacity and increase north and 2.1 m barrels to the ers to deviate from the route and the shortest waterway between 486 BC), by digging other canal 3.2 trillion cubic feet in 2016. transport costs and potentially south), 4.7 m bpd in 2015 (2.5 cross the Cape of Good Hope. Europe and coastal regions of established Suez waterway and [6] [16] [9] In total, about 30% of the affect energy prices.[10] m barrels to the north and 2.2 Indeed, closing the Strait of Indian Ocean and the western shipping restarted in this path. Payam Darya Payam Darya

44 45 Report

European and North American international channels in the markets, and the rest to the south world due to geopolitical, stra- (1.5 million barrels per day) tegic and geostrategic roles. are mostly to Asian markets. As mentioned in the text, each Oil exports from the Persian By describing the of these ways passes through a Gulf countries (Saudi Arabia, volume of the import large volume of oil, products, Iraq, Kuwait, the United Arab and export of oil LNG and many non-oil com- Emirates, Iran, Oman, Qatar, and non-oil goods modities. and Bahrain) account for 84% through the Suez In comparison with the four of the flow through the Suez Canal as a waterway main waterways of the world Canal to the north. In 2016, the (the straits of Hormuz, Malac- made by humans; largest importers of oil through ca and Bab al-Mandeb and the the Suez Canal were the Euro- many countries in the Suez Canal), the Strait of Hor- pean countries with 78% and continents of Asia, muz has the most important ge- the United States with 14%. Africa, Africa and opolitical and geostrategic role. Exports of oil from Russia with America are dependent According to the latest statis- 17% of the flow to the south on this channel, and tics, the daily traffic of oil and of Suez Canal accounts for the any disrupting on its products ranges from 18.5 to most transferred shipments, and 19 million bpd and the flow of the transit process Turkey with 15%, Netherlands a large volume of this product with 11%, and North Africa, in- will have a global in three other channels depends cluding Algeria and Libya, with consequences and on its passing. More than 30% 12% are in the next steps. The will have political, of the maritime trade of crude After the destruction and aban- barrels to the north and 0.8 m south), 1.2 trillion cubic feet in largest importers of the oil from security, economic, oil and other liquids in the donment of the Suez Canal barrels to the south), 2.9 m bpd 2013 (1 trillion cubic feet to the the south direction through this and communications world is made through Hormuz way are Asian countries and Strait. The Strait of Malacca in 1854, the French diplomat in 2012 (1.7 m barrels to the north and 0.2 trillion cubic feet effects. Ferdinand Dulspes, following north and 1.3 m barrels to the to the south), 1.2 trillion cubic Singapore, China and India ac- with about 30% of the maritime the strategic importance of the south), 3.2 m bpd in 2013 (1.9 feet in 2014 (0.9 trillion cubic counting for over 50% of total energy trade is in second rank. canal, could take the 99-year m barrels to the north and 1.3 m feet to the north and 0.3 tril- imports. (Table1) concession for construction and barrels to the south), 3.7 m bpd lion cubic feet to the south), 1.3 By describing the volume of operation of Suez Canal from in 2014 (2.1 m barrels to the trillion cubic feet in 2015 (1.1 the import and export of oil and In sum, by considering that the Mohammed Saied, Khedive of north and 1.6 m barrels to the trillion cubic feet to the north non-oil goods through the Suez daily flow of oil and non-oil Egypt. At that time, Egypt was south), 3.8 m bpd in 2015 (2.1 and 0.3 trillion cubic feet to the Canal as a waterway made by goods from the straits of Hor- part of the Ottoman Empire and m barrels to the north and 1.7 south), and 1.2 trillion cubic humans; many countries in the muz, Malacca, Bab-el-Mandeb, under the dominant of its king m barrels to the south), and 3.9 feet in 2016 (0.8 trillion cubic continents of Asia, Africa, Af- of the role of them in commu- and the Suez Canal is plentiful for the construction and the ex- m bpd in 2016 (2.4 m barrels to feet to the north and 0.3 trillion rica and America are dependent nication between countries and, and has a crucial role in the ploitation of the Suez Canal. In the north and 1.5 m barrels to cubic feet to the south). on this channel, and any dis- more importantly, the role they trade and economy of countries December 1858 the Suez Canal the south).[13] From 2000 to 2015, the import rupting on the transit process play in international trade and and regions of the world, any was established.[17] The compa- The amount of liquid natural of wheat through the Suez Ca- will have a global consequences economics through the tran- disturbing action in their traf- ny, which is legally an Egyptian gas (LNG) passing through the nal grew by 120%.[1] and will have political, security, sit of significant quantities of fic, or in other words, obstruc- institution, started construc- Suez Canal in 2011 was 2.1 tril- In 2016, the crude oil and prod- economic, and communications oil and non-oil goods through tion of each of them, can make tion of the canal on April 25, lion cubic feet (1.8 trillion cu- ucts and LNG passed through effects. them. a serious problem for the world Volume.10 / Sep 2018 Volume.10 / Sep 2018 1859, and ended it in 1869.[22] bic feet to the north and 0.2 tril- the Suez Canal were respec- Among the international water- economy. According to statistics, the total lion cubic feet to the south), 1.5 tively 17% and 6% of all trans- Conclusion ways, the three Strait of Hor- Table 1. The volume of oil and crude oil and petroleum prod- trillion cubic feet in 2012 (1.2 ferred goods.[14] Most of the International waterways, such muz, Malacca, Bab-el-Mandeb petroleum products traffic from uct flow from the Suez Canal trillion cubic feet to the north Suez Canal trips into north (2.4 as straits and canals, have un- and the Suez Canal, have a far 2011 to 2016 from four major in 2011 was 2.2 m bpd (1.4 m and 0.3 trillion cubic feet to the million barrels per day) are to deniable importance because greater importance than other waterways in the world Payam Darya Payam Darya

46 47 Report

Names of Waterways 2011 2012 2013 2014 2015 2016 Energy Strait of Hormuz 17 16.8 16.6 16.9 17 18.5 Strait of Malacca 14.5 15.1 15.4 15.5 15.5 16 Bab-el-Mandeb 3.3 3.6 3.8 4.3 4.7 4.8 Suez Canal 2.2 2.9 3.2 3.7 3.8 3.9

References English Resources 1. Eva Grey, Maritime chokepoints: https://www.eia.gov/beta/internation- TopicID=WOTC#note. Quotes from: the backbone of international trade, al/regions-topics.php?RegionTopi- Lloyd’s List Intelligence, Suez Canal Analysis, 3 October 2017. Retrieved cID=WOTC#note Authority (with EIA conversions). from: https://www.ship-technology. 9. U.S. Energy Information Adminis- 14. U.S. Energy Information Ad- com/features/featuremaritime-choke- tration (EIA), world oil transit choke- ministration (EIA), world oil transit points-the-backbone-of-internation- points, Last Updated: July 25, 2017, chokepoints, Last Updated: July 25, al-trade-5939317/ Strait of Malacca. Retrieved from: 2017, Suez Canal. Retrieved from: 2. Friedman George and Ligon Chey- https://www.eia.gov/beta/interna- https://www.eia.gov/beta/internation- enne, Major Choke Points in the Per- tional/regions-topics.php?Region- al/regions-topics.php?RegionTopi- sian Gulf and East Asia, website of TopicID=WOTC#note. Quotes from: cID=WOTC#note. Mauldin Economics, April 10, 2017. Lloyd’s List Intelligence, Analysis of Persian Resources Retrieved from: http://www.mauldine- Petroleum Exports (APEX) database; 15. Mohammad Reza Hafez Nia conomics.com/this-week-in-geopol- IHS Waterborne (May 2017); BP, Sta- (1999), Persian Gulf and Strategic Role itics/major-choke-points-in-the-per- tistical Review of World Energy 2017 of Strait of Hormuz, Tehran: Organiza- sian-gulf-and-east-asia (June 2017). tion for the Study and Compilation of 3. Goh Kim Chuan and Cleary Mark 10. U.S. Energy Information Ad- Humanities Books of Universities. (2000), Environment and Development ministration (EIA), world oil transit 16. Mohammad Farzam (1976), The in the Straits of Malacca, London and chokepoints, Last Updated: July 25, Suez Canal Crisis and Its Effects in the New York: Routledge. 2017, Strait of Malacca. Retrieved Middle East Arabic Countries, Ph.D. 4. López Martín, Ana G. (2010), Inter- from: https://www.eia.gov/beta/inter- thesis of Political Science University national Straits: Concept, Classifica- national/regions-topics.php?Region- of Tehran. tion and Rules of Passage, New York: TopicID=WOTC#note. Quotes from: 17. Anthony Gourest & Louis Janman Springer. National Defense University (1996), (1998), Suez Crisis, Translators: Ali 5. Reuters, Strait of Hormuz: the “Chokepoints: Maritime Economic Masoumi & Gholam Reza Emami, world’s most important oil artery, July Concerns in Southeast Asia”, Institute Tehran: Institute for Contemporary 5, 2018. Retrieved from: https://www. for National Strategic Studies. pp. 80-81 History Studies of Iran. reuters.com/article/us-iran-oil-factbox/ 11. U.S. Energy Information Ad- 18. Pirouz Mojtahed Zadeh (2000), strait-of-hormuz-the-worlds-most-im- ministration (EIA), world oil tran- Persian Gulf, Countries and borders, portant-oil-artery-idUSKBN1JV24O sit chokepoints, Last Updated: July Tehran: Ataie Press. 6. Rodrigue Jean-Paul and Notteboom 25, 2017, Bab el-Mandeb. Retrieved 19. Dareh Mirheidar (2001), Principles Theo, Chapter 11 – Applications and from: https://www.eia.gov/beta/inter- of Political Geography, Tehran: Organ- Case Studies: Strategic Maritime Pas- national/regions-topics.php?Region- ization for the Study and Compilation sages. In: Rodrigue Jean-Paul, Comtois TopicID=WOTC#note. Quotes from: of Humanities Books of Universities. Claude and Slack Brian (2017), The Lloyd’s List Intelligence, Suez Canal 20.Meisam Mirzaei Tabar (2011), In- Geography of Transport Systems (4th Authority, and GTT, using EIA conver- vestigating the Consequences of the Edition), London and New York: Rou- sion factors. Possible Obstructing of the Strait of tledge. Retrieved from: https://trans- 12. U.S. Energy Information Ad- Hormuz, Master’s thesis in political ge- portgeography.org/?page_id=756 ministration (EIA), world oil transit ography, Supervisor: Mohammad Reza 7. U.S. Energy Information Adminis- chokepoints, Last Updated: July 25, Hafez Nia, Tehran: Tarbiat Modares tration (EIA), world oil transit choke- 2017, Bab el-Mandeb. Retrieved from: University. points, Last Updated: July 25, 2017, https://www.eia.gov/beta/internation- 21. Meisam Mirzaei Tabar (2014), Is OPEC Going to Collapse? Strait of Hormuz. Retrieved from: al/regions-topics.php?RegionTopi- Volume.10 / Sep 2018 Strait of Hormuz and its strategic role https://www.eia.gov/beta/internation- cID=WOTC#note. through the history, Quarterly Journal al/regions-topics.php?RegionTopi- 13. U.S. Energy Information Ad- of Persian Gulf Studies, 1st year, No.4, cID=WOTC#note ministration (EIA), world oil transit Winter. 8. U.S. Energy Information Adminis- chokepoints, Last Updated: July 25, 22. Mohammad Hasan Nami (2007), The Gradual Death tration (EIA), world oil transit choke- 2017, Suez Canal. Retrieved from: Straits and waterways of the world, points, Last Updated: July 25, 2017, https://www.eia.gov/beta/interna- Tehran: Geographic Organization of Payam Darya Strait of Malacca. Retrieved from: tional/regions-topics.php?Region- the Armed Forces of a Dream! 48 Report

Although the organization has always emphasized the separation of politics OPEC is considered as the most effective global and its decisions, it has organization in oil relations. This organization was always been influenced by stablished in 1960 in order to reinforce the presence of international politics and powerful oil producer in the market to price this strategic diplomatic relations between commodity, and it has now hurt by the unkindness of some its members, and whenever members on its 58th anniversary. tensions between countries are minimized, OPEC has also been able to play a real role in the oil market. Indeed, OPEC has always been the protector for its members, which supplies more than 30 percent of the world’s oil in total, and it has helped them in the hardest days. However, over time, members of OPEC were divided into two categories: pigeons (cheap oil defenders) and bats (expensive oil defenders). Iran and Saudi Arabia, as the two main members in this oil cartel, tried to dominate other members as leaders of these groups. But both groups have proven over time that economic benefits can overcome any disagreement, Will some of the OPEC’s members destroy this important oil cartel? and OPEC eventually reached consensus. Of course, over the past few years, the shadow of political disagreements with trends in The danger of the acquisition of traditional Iranian markets following oil sanctions against this country has called into question the quota, which was the main 60 years history characteristic of OPEC, but within a couple of years after Volume.10 / Sep 2018 Volume.10 / Sep 2018 the oil price fell below $30, despite the fact that Iran and collapse Saudi Arabia had serious differences in the regional By: Houri Ghasemi and international scenes, they Payam Darya Payam Darya

50 51 Report

reached a consensus on the oil promised to secure American which violates international market and the rise in prices. energy independence from agreements, and by referring American hostility to oil enemies and oil cartels and to the “Article 2” of the OPEC cartels create complete American Statute, which emphasizes The consensus was again an energy independence. the interests of each or all alarm for the major consumers Despite this danger, Saudi of the members, called for of oil, since whenever OPEC Arabia, following the the inclusion of a separate members being together for withdrawal of USA from agenda at the upcoming OPEC economic interests, it showed JCPA and the possibility of conference entitled “Support that political opponents were reducing Iranian oil exports, of the meeting of OPEC left and they go to Vienna. is listening to Donald Trump’s ministers from members who Consequently, the US Congress order to offset the decline in are subject to illegal, unilateral is following a bill (NOPEC) the oil market, knowingly and transboundary sanctions.” by the US Congress to capture or unknowingly closing In this letter, he emphasized if global oil markets from foreign its eyes on the fact that the as a result of these sanctions, producers, which will allow USA not only does not seek the Islamic Republic of Iran’s Washington to complain OPEC benefits Saudi Arabia in share of the oil market is for manipulating oil prices. the oil market, but also it is reduced, Iran will return to However, the NOPEC idea is trying to reduce the power of its normal production level as not new issue and it returns to the Middle East in oil market soon as possible, without any 2000. Former US presidents, and is preparing the ground restrictions on it. George W. Bush and Barack for the end of OPEC’s life. Zanganeh, referring to Obama threatened to use their comments by some members veto power to stop it if the bill Iran heard the alarm of the OPEC in recent days, was passed as a law. In 2007, But the alarm has been well noted that no country is an a similar bill was passed in known by the Iranian oil OPEC spokesperson and that in spite of tensions in the quotas allocated to countries at production and the level of the United States House of minister. By considering this, the organization’s decisions are political relations between Iran the OPEC 171th meeting, and compliance of countries. Representatives with 345 votes Bijan Zanganeh before and made only by the consensus of and Saudi Arabia, wrote to the not a license to redistribute This time, the Iranian Oil in favor, against 72 votes in after the OPEC 174th meeting all its members. Saudi Minister of Energy, and quotas for trade adjustment Minister also emphasized the opposition, and in the Senate, wrote to the President of the Despite the letter that was by appreciating the country commitments among member important role of OPEC in it passed with 70 votes in favor, OPEC Conference and even the written before the OPEC 174th to comply with the reduction countries.” future decisions and is trying against 23 opposing votes, but Saudi energy minister, warning meeting, Saudi Arabia became commitment, insisted that Zanganeh emphasized: In my to keep this cartel still strong it faced with the White House’s that OPEC’s independence is the spokesman for anti-OPEC the Joint OPEC/Non-OPEC opinion, in the production in the oil market. opposition. However, this time in danger. Trump’s policy, and over Ministerial Monitoring and quota observation issue, there is a high probability that In the first step, Iran’s oil the meeting, it defended the Committee (JMMC) has only OPEC decisions that are Weakening OPEC with Trump will sign such a bill as minister, Bijan Zanganeh sent increase of oil production. no right to comment on adopted by the consensus of unilateral behaviors of a law. a letter to Minister of Energy Although this demand was not any decisions made by this the ministers of the member members Donald Trump has been and Industry of the United Arab achieved by Iranians, countries organization. countries are valid and should But the agreement of Saudi OPEC’s critic for many years, Emirates, Suhail Mohammed were required to continue Pointing out that, according to be considered by OPEC Arabia and some other oil and during his campaign Faraj Al Mazroui, and the to produce oil within the the decision of OPEC 174th members as the standard of producers with the statements in 2016, his verbal warfare president of the Organization framework defined by OPEC Conference, the members operation. In this regard, the of Donald Trump forced was reflected on the pages of Petroleum Exporting 171th meeting, which was a pledged to start from July 2018 Joint Technical Committee for Zanganeh to rewrite another Volume.10 / Sep 2018 Volume.10 / Sep 2018 of international newspapers. Countries (OPEC) conference. great success for Iran. to assert their commitment the monitoring of the global letter to President of the OPEC Trump at that time said that The Minister of Oil referred to to the production adjustment supply reduction agreement, Conference. The oil minister the United States should the imposition of unilateral and Zanganeh’s insistence on of 100%, he said: “But this based on the mission for that of Iran, in a letter to Emirates completely stop oil imports illegal US sanctions against maintaining the quota system decision is not a license to it is defined, should monitor Energy Minister Sahil from Saudi Arabia. He also the Islamic Republic of Iran Following this letter, Zanganeh, increase production beyond the and report on the level of Mohammed Faraj Al Mazroui Payam Darya Payam Darya

52 53 Report

and the Director General of said: “OPEC’s decisions are the 174th Conference of the the OPEC, emphasized that not such as to justify the actions OPEC on June 22, 2018, that any increase in production by of some members in pursuit the member states pledged any member of OPEC beyond of USA demand for increased to increase their level of the obligations set out in the production, which was adopted commitment to reduction Statement of Conferences with political motives against target to 100% from July, he 171 and 174 violates this the Islamic Republic of Iran added: “This decision is not a agreement. and announced publicly. Since license to increase production Referring to the decision of we all agree on separating beyond the quota set by the OPEC 174th Conference OPEC’s efforts from politics, 171st Conference, nor the that emphasized on 100% we should not allow others to permission to re-distribute commitment of OPEC undermine OPEC’s unity and the quota of production cuts members to achieve maximum independence through political between members.” production, he added that action.” “This means that the decisions no decision has been taken At the end of this letter, and the specified limitation at regarding the substitute the Zanganeh added: “While we the OPEC 171st Conference are production share of one may have positions similar to still valid, and the production member to the other members, those expressed by any of our of countries should be in line and insisted that any increase non-OPEC partners such as with the pledges,” he said. in production by any member Russia, but I want you as the The minister said that according of OPEC is beyond the president of the OPEC at this to the latest monthly report of obligations set out in the historic moment of long-term the OPEC, the production of Statement of Conferences principles, to protect the unity some member countries in June 171 and 174 and violates the and interests of OPEC.” was far higher than the quota agreement. for them, and it was a violation market, are continuing their to JMMC’s misinterpretation JMMC and JTC operation is Zanganeh asked all members Emphasize again and again of the commitments made at individualist efforts, the tireless of the decisions of the OPEC completely in conflict with to adhere to their commitments and again OPEC 171st Conference. He oil minister of Iran did not stop conference.” their supervisory status, and and decisions made by OPEC This time, the Oil Minister of explained: “It is worrying that and wrote another letter to Faraj Zanganeh continued: “At that indicating a misinterpretation at 171st and 174th Conferences Iran made clearer criticisms the violation will continue in Al Mazroui, and in the letter meeting, as stated in its report, of the JMMC from its position and to avoid from any and specifically stated that the following months of 2018 by referring to the supervisory the JMMC has wanted JTC to and not paying attention to the unilateral action, which would OPEC’s independence was (the remaining months of mistake of the JMMC on the monitor the implementation decision of the OPEC 174th cause damage to OPEC’s unity in danger, but still there was agreement) and will run into a implementation of decisions of the decision taken at the Conference.” and independence. no one to be aware of these routine, in contradiction with in 171st Conference and the fourth OPEC and non-OPEC Taking a look at recent decisions He further added: “at a warnings, and Iran once again the decisions of the 171 and Resolution 174: 513, he added: ministerial meeting, , but did by some members of the OPEC meeting of the joint OPEC- stood up against OPEC’s 174 Conferences.” “As I mentioned in the previous not mention any thing about boosts the probability that the non-OPEC ministerial collapse. He said that if OPEC members correspondence, an accurate monitoring the decision of USA efforts for decreasing the monitoring committee, Iran Zanganeh wrote another do not fully respect their interpretation of the decisions OPEC 174th Conference. impact of OPEC in oil market announced that any unilateral letter to Al Mazroui and commitments, it will gradually of the OPEC 174th Conference Oil minister emphasized and finally deactivating it will increase in production by the emphasized that if OPEC endanger the effectiveness is necessary to monitor the that Iran participated in the be done by the producers, and member states more than their members do not fully respect of the OPEC, and violator proper implementation. The eighteenth session of the JTC as long as they do not sacrifice commitments in the minutes their commitments, the members of the organization decision taken by the first without having the right to alliance for economic benefits of the OPEC decisions would effectiveness of the only will be the responsible for this. extraordinary meeting of the vote, and incredibly saw the by political differences, the Volume.10 / Sep 2018 Volume.10 / Sep 2018 stimulate the United States to successful intergovernmental joint ministerial committee efforts of some members of unilateral defense of Iran from act against Iran. organization of developing Misinterpretation of the to monitor the OPEC and the committee to redistribute independence and unification While expressing regrets at countries with over 60 years correct decision non-OPEC agreement and excessive quota between of OPEC cannot be effective the unilateral actions of some history in the oil market will Despite the fact that other communicated to the Joint them and attempt to assign alone, and it is necessary that members that undermines the be in danger. members, without regard Technical Committee (JTC) excessive quota to non-OPEC all members do action until foundations of the OPEC, he Referring to the decision of to whole interest in the oil on July 18 added my concerns countries. He explained: “This there is chance. Payam Darya Payam Darya

54 55 Interview

What is the reaction of the market to sanctions on Iranian oil? The first phase of the resumption of unilateral US sanctions against the Iranian economy began a month ago and, according to the announcement by the US president in November 2018, Iran must wait for much strict sanctions. Since oil is one of the main objects of Iran’s economy, this time the oil industry has been seriously targeted at sanctions, and Donald Trump has announced in an ambitious hope that the sanctions will reduce 2.8 million barrels of Iranian oil export to zero in order to close one of the most important foreign exchange earnings of Iran. USA against Although all emphasize that zeroing Iranian oil exports is almost impossible, and in the worst case, only half of the country’s oil exports can be extracted from the world market, but in general, there will be obstacles for Iran to sell its own oil. We have been talking to Seyed Mahdi Hosseini, the former director of international affairs at the Ministry of Petroleum, and the designer of the Buy Back and IPC contracts for the feasibility study of zeroing World Energy Iran’s oil exports, as well as the ways and means to deal with it. He believes that Iran should take the most advantage of the conflict between the world and the United States in this situation, in order to gain the opportunity to operate the international private sector in Iran through the pressure of governments. According to him, the use of international legal instruments, such as the International Court of Justice, could make Iran victorious in unilateral economic war started by USA. So Iran can dominate the global Security relations and communications.These issues and more are discussed in this interview with the Payam Darya Correspondent, which you can read below. Volume.10 / Sep 2018 Volume.10 / Sep 2018 Payam Darya Payam Darya

56 57 Interview

there is concern in the world Energy Agency (IEA) predicts is back to the security of energy about supply of energy, so far that in the decade, $ 16 trillion supply. For this reason, it has as the first US attack to Iraq is in the energy sector should be announced to its oil companies, known as the oil war which was invested in order to supply the such as INPEX, that they will happened after Iraq’s military world with its energy demand. be financed if they do some invasion of Kuwait and the Of course, $ 10 trillion of this exploration activity anywhere capture of its oil fields. $ 16 trillion will be related to in the world. electricity and electronic issues, Given these concerns, is there and about $ 6 trillion must be The president of the United currently enough oil in the invested in oil and gas sectors. States considers his ultimate world to meet the needs of goal of sanctions against Iran consumers? Despite this need in the world, to reduce oil exports of this US sanctions against Iran country to zero. Do you think There are two factors in mean that the investment it will be possible? supplying oil. The first factor will be stopped in one of the is whether there is essentially largest countries holding oil An important point that could enough oil in the world. In this and gas reserves. What does avoid USA to achieve its goal case, experts have two different this mean? for zeroing Iran’s oil exports theories. One group of reservoir is that traditional Iranian oil engineers believe that the oil The sanction against Iran markets are growing. China, fields have been out of their half- means that this investment will India, East Asia, South Korea lives and have become obsolete not be made, so the oil market and ... are our traditional and we are heading towards situation will be critical. In fact, oil market. Europe wants to The president of the United These days, several conventions world’s energy basket, and Iran a decline in oil fields, which in simple terms, the Iranian oil preserve JCPOA because of the States has announced that have been signed in the world, will play an important role as makes concerns in oil market. sanction is a war with the world conflictions and humiliations since November 2018, obligating countries to reduce one of the major oil producers On the other hand, according because it causes the world’s of the United States (three of Iranian oil sanctions will be greenhouse gas emissions, and one of the largest holders of to statistics, economists believe concerns about the supply of the European countries asked intensified. In your opinion, which means reducing fossil oil reserves. By considering the that we will have oil for years. oil. for adhering to JCPOA, but will the current status of the fuel consumption. fact that world demand growth Their opinion is that the world’s Although the US has the American president did not oil market allow the United The next factor is the growth for crude oil in the world was 1.7 oil reserves totaled 300 billion already invested heavily on respond), and also they need our States to do so and if sanctions of technology. The growth million bpd last year, but output barrels in 1960, and it was unconventional oil and has oil, so the world is in opposite are imposed, how much will of technology will result in growth was only 0.6 million anticipated that the oil would be added 4-5 million barrels to its position of America in this case. Iran’s oil exports decrease? higher efficiency and lower bpd, concerns are growing. The exhausted within 40 years, but production, unconventional oil However, if sanctions are consumption. United States has the largest by 2000, looking at reserves; is not reliable for a long time, as implemented, some parts of The issue of stopping Iranian However, despite the fact that share in production growth of we found 300 billion barrels had a shale oil or shale gas well has the European and Asian private oil exports is not just a matter renewable energies had the 690,000 bpd. In contrast, the increased to a thousand billion a lifespan from 3 to 4 months sectors that are concerned about between the US and Iran, highest growth rates in 2017, Venezuela with decrease of barrels. It means that, in addition and it should be dig again, their own capital in the United but it is an issue of the global the share of renewable energy 440,000 bpd and Saudi Arabia to meeting global demand in 40 while a typical oil well in Iran States will abandon this market oil market. It is clear that for compare to oil and gas is still with reduction of 450,000 bpd years, the reserves have tripled is up to 50 years old. and reduce their oil purchases various reasons including world low, and by looking at the had the most declines in the with new discoveries and new Concerns about the supply from Iran, so Iran’s oil exports economic growth, population energy basket of the world, the world. Even Saudi Arabia has technologies. Also, in 2012, this of sufficient oil makes some will drop to some extent, but growth, standard of living, share of this energy category is not been able to produce its figure reached to 1,600 billion consumer countries to be as an Iran’s oil exports will not be and so on, the world is facing lower than 10%. quota in 2017. barrels, so in this case I am explorer and help to increase zero. I believe that in the worst Volume.10 / Sep 2018 Volume.10 / Sep 2018 increasing energy consumption. Therefore, the world in the On the other hand, as in the advocate of economist. production in oil projects case scenario, it may be 1-1.2 In addition, there are factors that coming years should think past decades there has been But this oil is underground around the world. For example, million barrels as it was in the reduce energy consumption. about providing adequate and the cause of military conflicts, and there should be invested one of these countries is Japan. past sanctions. The first of these factors is proper oil on the market. Oil military intervention, and so on billions of dollars until it comes The energy of this country is environmental considerations. lonely accounts for 30% of the in some places like middle east, to Earth. The International imported totally, and its security Recently, Iran has submitted a Payam Darya Payam Darya

58 59 Interview

complaint to the International the chance of returning to the Korea and Japan, which needs announced that your sanctions Court of Justice, which treaty. As Iran and the United our oil. In an emergency, we are actually against US oil considers it illegal to return States have signed the Vienna do everything that is logical, companies because Iran makes sanctions against Iran by Convention and are committed but it’s not right to imagine that contracts and It does its job, USA. So the chief of this court to it, in accordance with this the Russia can solve all of our and in the meantime, we have wrote to the United States Convention, imposing the problems. If we are to pursue missed our share of this good and called for sanctions to be sanctions will be illegal. an inappropriate discussion energy market (Iran is really postponed to clarify the issue. Also, in the resolution section of of oil against commodity, it’s attractive and geologically the Do you think this could help JCPOA, article 65 stated that if important to note that our country is one of the best in the Iran preserve oil exports? there were any objections to its general industry is Western world, and oil companies love implementation, according to industries and the Russia cannot the geology of Iran). This complaint has been Article 33 of UN Charter, they supply the necessary spare parts The result was that within the prepared by Iran in accordance could submit complaint to the and commodities for us. United States, an association with the Vienna Convention. International Court of Justice. with 470 companies, monetary The Vienna Convention is a It should be noted that Article What do you think is the institutions, banks, and etc., convention for monitoring 33 of UN Charter is statute most important solution to was created in 2000, and it the good implementation of the Court of Justice in the confront the sanctions? pushed the US government of agreements between the Charter of the United Nations. to lift sanctions on American governments. Article 66 of the So the Vienna Convention is The first point that comes to companies. Vienna Convention states that accepted by Iran and the United mind is that we should sell This pressure on the US if a country wants to withdraw States, and with this in mind, I our oil from every way we government was so high that I from an agreement, it must first hope very much that we could can. I believe that what we believe if the September 11th prepare some conditions; it achieve our goals. experienced in the previous event did not happen to affect should warn, wait three months sanctions was expensive. We the whole world, the sanctions and eventually if it withdrew ‌ By increasing the probability got into trouble, economic against Iran would have surely and the opposing party of return unilateral sanctions corruption was created, and lifted at that time. objected, it can complain to the against Iran by the United some persons like Zanjani Therefore, we must recognize International Court of Justice. States, the possibility of emerged, and so on. Therefore, the conflict of interests and take Under Article 72 of the Vienna exporting oil from Iran to we must learn from it and write the most advantage of it. These Convention, and according to a Russia has been strengthened. another scenario to counter the days, this conflict of interests letter written by the head of the Can the purchase by Russia sanctions. between USA and others has court under the same citation, help Iran to export oil at the For example, during the Buy reached to maximum, and we even if the United States had term of sanctions, and what Back contracts to deal with should take benefit of it as the right to withdraw, it would will be the reasons for Russia sanctions, we have taken much as possible. not have had right to impose to do so? maximum advantage of the sanctions. conflict of interests between How can this conflict of interest Therefore, it was argued Although we have a very good Europe and Asia with the be managed to maximize that both parties should be political relationship with United States, so that over the the benefits for Iran? present in order to approve the Russia, it is our competitor two to three years, we signed jurisdiction of the court, but in the oil market, and it 20 contracts worth about $ 50 In my opinion, the first is to it is not relevant. Since in this wants to take our place in the billion, which resulted in South focus on the Europe countries; case that the United States has international markets as it did Pars development and creating this is now being done. Iran unilaterally withdrawn from the before. That’s why I believe the capacity for one million wants Europe to prepare a Volume.10 / Sep 2018 Volume.10 / Sep 2018 treaty, Iran can sue unilaterally that in the investment and barrels of oil. supportive package of JCPOA. and the court will check marketing sectors, we should At that time, the United States We should give solutions to the conditions. This article not work with our rivals, but could not boycott anyone, and Europe and Asia that want to emphasizes that if someone we should pay attention to even this conflict of interests preserve JCPOA. Today there withdraws a treaty, they should consumers. Therefore, we must within the United States was are two groups. One group of Payam Darya

Payam Darya not take steps to eliminate deal with Europe, China, South formed, so US oil companies governments in Europe and Asia

60 61 Interview

are heavily angry with America and want to stand against the decision of this country. The supportive package of JCPOA is prepared for this reason and we should try to have billions of digits instead of millions. In contrast, the private sector of the countries are the main points of the business to sell services and invest in Iran, so governments can encourage the private sectors to continue cooperation with Iran by doing supportive activities. This is practicable because the Iranian oil market is attractive. This will of course have two and could not deal with which technology, this wealth is lost in dimensions. One dimension company and fine which of the underground, or taken from is economic and oil needs, them and maybe today we were neighbor countries. and the other is the political not in this condition. Also, if we dimension that wants to oppose could prove that our production And as the last word … the United States. Of course, would reach 5.6 million barrels other experts may have better in the next two years, the US First-class companies must enter solutions that should be taken president could not say that we into negotiations. First-class into consideration. are zeroing Iranian oil exports. companies have two features. If this is done, then the United Of course, some people in Iran First of all, as they are credible, States will be forced to allow said this was impossible, but their work is important and they private companies that are it was possible. Total Russian do the right thing, and wherever concerned about the sanctions, reserves are 100 billion barrels, they get into trouble, they spend as it did in previous 2000 and it produces 11 million bpd. even more on the contract to sanctions. Iran’s reserves with a current maintain their credibility. In recycling rate are 157 billion fact, they sacrifice their benefits ‌ The oil minister said that if barrels, so why we cannot to preserve their credibility. we signed more contracts with produce more oil? Second, large companies have major oil companies in the Another point is that today political power. world, we would not be easily Saudi Arabia has a recycling I even believe that we can sanctioned. Do you think the rate of about 50%, it has achieve a strong oil lobby more contracts would make reached 70% in one field, but in the world with the proper lower the risk of sanctions? our recycling rate is less than oil contract. Our theory was based on the same thinking If we could take advantage 25%. If we were working like from the beginning, and in the of the opportunity of JCPOA Saudi Arabia, bringing new

Volume.10 / Sep 2018 5 months, the contract model and finalize several contracts technologies and our recycling was extracted and we held an with large companies from rate was like them, it would international seminar. In fact, England, France, Europe, Asia, mean 15 trillion dollars in the support of an oil lobby can Japan, etc., the story of Buy national wealth. Our 150 billion solve a lot of political issues for Back contracts would repeated barrels of oil would reach 300 billion barrels, but with current Iran.

Payam Darya again, and the US did not know

62 Report

Prior to this game, it was and demands in the oil market. announced that the Russian Russia, as well, wishes to President, Vladimir Putin, and depict how trivial Crimea-and- the Crown Prince of Saudi Ukraine-related US sanctions Arabia, Mohammad bin Salman, on this country are by staging would attend the stadium to his power in the field of energy watch the game up-close. The supply for the world in general delicate point here was that and for Europe in particular. the Saudi energy secretary Even if OPEC and non-OPEC An Elegy accompanies Bin Salman in this countries’ agreement to reduce trip, and as expected, the world oil production does not hold up, cup inauguration was a chance Russia and Saudi Arabia have for Saudi Arabia and Russia to made a mutual pact to pursue prove that they intend to design their endeavors to manage a new system in the oil market to energy market. This matter for OPEC play a bigger role in pricing and could be a grave threat for the guiding this market. survival of OPEC. In fact, Saudi Saudi Arabia and Russia Arabia is highly interested in produce over 22 million barrels reducing the effectiveness of The Inauguration ceremony of the 2018 Soccer World Cup of oil every day, which accounts OPEC, and believes that Saudi could be deemed as the most politically-driven world cup for 20 % of the oil produced will be better off on its own and inauguration. Russia and Saudi Arabia were going to play a globally. Earlier than this, these away from the other 14 OPEC game which could have been measured far beyond the borders two countries played a crucial members. Thinking of its own of a soccer game. It broadcast a crucial message to the world’s role in the agreement to reduce interests and not considering oil markets; it was more of a funeral banner than a message: production in fall 2016 in order the interests of 14 other nations, The funeral banner of OPEC. to increase the oil price. Given Saudi Arabia believes it has a far that the earlier collaborations easier way to grasp the global of these two countries led to oil market. acceptable results, they are The most significant cause that now tempted to rely on their is driving Saudi Arabia to reduce 20-percent share of the world’s OPEC’s power is dismantling the oil market and implement their rationing system. By eliminating intended global oil structure. rations among OPEC countries, Indeed, on the one hand, Saudi each of the members could Arabia and Russia wish to produce and sell oil as much as stand facing their traditional its capacity allows. Yet, Saudi rivals such as Iran; and on the seems to have forgotten the last other hand, not let the United time it did not fallow the ration States fulfil its dream of plans and dropped the oil price increasing its oil export through to under $ 30. On the other hand, unconventional oils. another major reason for the Saudi Arabia and Russia’s unity Dream of Totalitarianism in today in the oil market is the the Oil Market sanctions of the United States Volume.10 / Sep 2018 Volume.10 / Sep 2018 Saudi Arabia wishes to establish against Iran. As serious rivals of its position in OPEC as an Iran, these two countries have unrivaled one, in such a way always tried to capture Iran’s that other members, particularly traditional market. Even though Iran, give in to all its decisions they have some conflicts and Payam Darya Payam Darya

64 65 Report

differences of opinion with the 2016 and 2017, Saudi Arabia’s not be commercially justified. United States, sanctions of Iran crude oil reserve shrank to 245 In short, Russia is not the right provide them with a unique million barrels by the end of alternative for the replacement chance to gain more influence 2017. Dividing the amount of of Iran’s share of the oil market. in the market. Nevertheless, a reduction to the number of the brisk glance at the earlier oil days in the period of reduction, OPEC to Deter Saudi Arabia’s sanctions on Iran highlights that we can perceive that 670,000 Reaching its Dream the absolute 100-% sanctions on barrels a day from the daily Inability to increase its Iran’s oil are impossible. Even sales of Saudi Arabia’s crude oil production capacity is not the United States has retreated was supplied from its reserve; Saudi Arabia’s only issue in from this high-flying goals; hence, if the country intends to its attempt to remove Iran and even if it happens, Iran has add 1 million barrels a day to from the oil market. Being an proved that it could retrieve its its sales, its reserves are able to OPEC member, Saudi Arabia is markets at an incredible pace. support this sales rate up to 8 facing various legal problems months only. in its crusade. Hence, with the Hazardous Game of Oil Given that reserving oil is above-mentioned measures, it Impactors one of the most significant is trying to reduce the power Even with their high production impactors in this market, Saudi and functionality of OPEC and capacity, Saudi Arabia and Arabia’s approach in raising its turn its decisions as the final Russia are unable to compensate crude oil sales cannot possibly say for other members. In a Iran’s 2.8-million-barrel share be a sustainable one. Besides, letter to all OPEC members, of oil and gas condensates, in this increase can pose a grave Saudi’s energy secretary, Khalid case Iran is totally removed risk to the oil market: If Saudi Al-Falih, officially announced from oil sales. Arabia cannot deliver this added that the monitoring plan for oil commitment to overall OPEC- is observed with no alterations. kept at a desirable level. Hence, Saudi Arabia’s oil production 1 million barrels a day, the production, sales and maximum produced oil. Hence, it is no This part is what Saudi Arabia what Saudi Arabia is after is record has never seen the actual ramifications to the oil market production limits is no longer longer interested in observing and those interested in imposing dispersal and projection in the production capacity of 11 would be perilous and non- in place for each country alone, other countries’ share of the a diplomatic failure on Iran are oil market and weakening the million barrels a day. In order to compensable unless another and what counts is the overall OEPC oil export. This is a clear neglecting. The noticeable point position and role of OPEC. depict that its daily production country is able to deliver several production of all the countries violation of the agreement since here is that the concludes does capacity is 12 million barrels hundred thousand barrels a involved in the plan. in the commitments made in the not delegate any authority to any Oil to Return to 3-Figure daily, Saudi Arabia is currently day more than its current sales In order to bypass the 171st OPEC meeting, maximum committee member to terminate Prices using the oil in its reserves, capacity. commitments that it had made in production limit has been set the agreement or to change its In the light what was discussed currently having been worked Likewise, Russia, which OPEC’s most recent concludes, for each member. In the 174th course of execution. above, oil market is on the out to be approximately 240 had already signed the 2016 Saudi Arabia has placed strong concludes, all countries have Based on the OPEC November threshold of a shock, which million barrels. This procedure agreement on reducing 600,000 emphasis on the term “overall been requested to honor this 2016 meeting concludes, the could boost the prices to their was also formerly conducted by oil barrels together with 9 commitment”. Under this term, commitment fully, not that a committee of secretaries is peak. Another factor that Saudi Arabia, while Kuwait was other non-OPEC nations, is OPEC members are bound to maximum limit is set for total responsible for monitoring each could accelerate the rise in occupied by Iraq and as well, considering increasing its be 100-% committed to the OPEC production. and every member to make sure oil price is the possibility of a while Saddam Hussein was production in recent months. global agreement on reducing Saudi Arabia’s reference to they honor their commitments massive reduction in Iran’s oil dethroned from Iraqi presidency. Just like Saudi Arabia, the production. Now, Saudi Arabia the term “overall” is a bold in the agreement. In the light of production. Oil market investors By the end of 2015, Saudi question regarding this decision is offering an interpretation violation of the spirit of OEPC’s this responsibility, preserving count the disruption in Iran’s Arabia’s crude oil reserve was is: Does Russia have such from this commitment, which concludes and agreement on the shares of each OPEC oil export as a price booster 325 million barrels; however, production capacity? conspicuously contradicts production reduction. In fact, member is the main duty of this and OPEC’s increased sales this figure diminished noticeable Traditionally, Russia has proved the reduction agreement. In right under the clause that Saudi committee, and this matter has as a price killer in the market Volume.10 / Sep 2018 Volume.10 / Sep 2018 in 2016 and 2017 to supply a that it is unable to increase its this inference, Saudi Arabia Arabians are referring to, OPEC vividly been emphasized in the in the upcoming months. The part of the country’s daily oil daily production more than 100 announced that no specific concludes contains a directive final concludes of the meeting. collapse of Venezuelan oil sales, which was 10,460,000 to 150 thousand barrels. Hence, maximum production limit that encourages the committee of Under this plan, each country industry, which exploded like and 9,954,000 barrels a with the 850,000-barrel sales of has been set for each country secretaries to monitor the limits is committed to abide by its a time bomb, and Iranian oil day, respectively. With an Libya out of the market, Russia’s alone; rather, the commitment and make sure that commitment maximum production limit so industry’s return to sanctions 80-million-barrel reduction in small-capacity increase would to maximum production rate is to global reduction agreement that total OPEC production is era have prepared the grounds Payam Darya Payam Darya

66 67 Report

for a tremendous shock. Hence, convey that the position of this the growing pace of disruption organization in intentionally in international oil supply is being weakened by Saudi promising news for those who Arabia and Russia, and with the favor a rise in oil price, up to the company of the United States. A point that oil market activists novel identity is currently being have speculated figures of over formed in this field, which could $ 150 per barrel. forge oil geopolitics for many Even though the increase in the years to come. oil production of Russia and Saudi Arabia’s current role in some OPEC members have so OPEC is now more colorful far harnessed price jumps to than ever, and this country was some degree, and have managed the most effective player in the to reduce oil price from its decision to reduce oil prices in 80-Dollar peak in May 2018; it Vienna meeting. Saudi’s energy should be noticed that the price secretary, Khalid Al-Falih, boos in May was an upshot of made it clear that his country Trump’s decision to withdraw would take whatever necessary from JCPOA. That is to say, measure to supply the needs Iran’s oil export had not fully of the market and emphasized been left out of the oil market Saudi’s capacity to increase its back then. Therefore, once Iran’s production as much as 1 million oil sanctions are executed, a price barrels a day. He enjoyed the jump is awaiting the market, full support of Russia’s energy just like it occurred in 2012. secretary, Alexander Novak, in Other speculations have it that this decision. under sanctions, Iran’s oil export Russia is the second most might diminish approximately significant player in the oil 800,000 barrels daily. Seeing market today, after Saudi that every 1-million-barrel Arabia. Even though it is not reduction in daily international an official OPEC member, oil supply can bump Brent Oil Russia, as the world’s largest prices up to $ 17, it is estimated crude oil producer, has managed is yet another launch pad for with the Trump’s taking office US does need OPEC and non- should wait and see whether or that new sanctions on Iran can to establish its position in the Putin to boost Russia’s power as the United States president OPEC nations to increase its not the new order in oil market raise oil prices up to the borders global oil price management side and influence to earn more and his claims as to his country’s oil production. Hence, although can hammer out better days for of $ 100. This is likely to happen by side with Saudi Arabia. The cooperation and diplomatic not needing Saudi oil, US-Saudi the United States is only inches black gold producers once it has while even the most optimist oil importance of this country in oil interaction from the world’s ties have turned colder. At this away from the independence been implemented. market activists never predicted market has grown to the point largest oil consumers, including point, Saudi Arabia’s attempts point in terms of oil, the black As the final word, I am of the a 3-figure price for the black that Saudi’s energy secretary, the United States. in forging a novel framework gold is still a key player in its opinion that last week’s decision gold, at least not in the near Khalid Al-Falih, publically In the course of the past decades, of collaboration with Russia foreign policy, seeing that an regarding reducing production future. After all, oil tends to be announced that Russia is being oil price has been the axis around bears the message that in the increase in oil prices means a reflects the new political- more of a strategic good than considered to join OPEC as which the relationship between upcoming years, Russia will reduction in profit or even loss petroleum collaborations an economic commodity; and an associate member. The Saudi Arabia and the United play a more colorful role in for its industry. between Russia and Saudi political factors play the most two countries show signs of States revolved. The efforts managing global oil price. In conclusion, the geopolitics of Arabia, which is a new turning Volume.10 / Sep 2018 Volume.10 / Sep 2018 colorful role in its destiny. establishing collaborative ties, of Saudi’s prince to reduce oil Despite an upward leap in the oil in the world is undergoing point in the global oil order. It as and the new unity between the prices and his commitment popularity of Shale oil, the a crucial change, whereby well reflects that oil geopolitics Evil Triangle to Fly over two nations in global oil markets to maintain these efforts have United States has not managed Saudi Arabia and Russia are is still significant, despite a OPEC management is deemed as a always been the turning points of to strengthen its influence in endeavoring to gain the most forward leap is Shale oil and A meticulous survey of recent tremendous change. Russia’s diplomatic ties between Riyadh global oil markets yet. The profit by relying on their the energy change in the United OPEC meetings in Vienna role in managing oil markets and Washington. Nevertheless, noteworthy point here is that the production capacity. Yet, we States. Payam Darya Payam Darya

68 69 Report

Trump Command…?!

In the past two years, the president of the United States has proven that Twitter is one of the most important ways of coveying his serious positions to the world, so when he decided to explicitly warn his allies in OPEC that they should keep oil prices low, he went back to this popular social network. Donald Trump criticized OPEC members in a harsh and humiliating tone about manipulating oil prices and keeping prices high on the market, and demanded that gasoline prices be lowered now.

The president of the United words to criticize OPEC this concerned about prices in the oil States said in this tweet: time, he continued to speak market! While the United States “The OPEC Monopoly must from a powerful position. The has consistently supported remember that gas prices are up president of the United States high oil prices because of & they are doing little to help. also said in an interview: “OPEC the economic growth of If anything, they are driving stops price manipulation; we unconventional oil production, prices higher as the United are supporting many countries but why now it is emphasizing States defends many of their in this organization.” Or he the prices should not be allowed members for very little $’s. said: “They (Saudi Arabia and to grow! This must be a two way street. its allies) should recoup the The answer is, of course, simple. REDUCE PRICING NOW!” Iranian oil off the market. Who The United States is worried But this did not end there, and are their enemies? Iran, Iran is that oil prices will re-enter $ the president of the United their big enemy and they have to 100 level, the prices that could States criticized OPEC for the do it.” He speaks so strongly of affect the domestic industry, second time in the past few his position that it was belived with sanctions imposed on months for manipulating oil that Saudi Arabia is the colony Iran’s oil exports and sales from prices. of this country, and Saudi king, November. Also, rising fuel Volume.10 / Sep 2018 Volume.10 / Sep 2018 Donald Trump wrote on Salman bin Abdulaziz must be prices near to Congressional Twitter: “High oil prices and his servant. elections could reduce the share OPEC remain responsible for it. of Republican representatives. It’s not good at all.” Although USA defense of cheap oil Although the United States US President has used fewer But why the US president is so is confused over the two Payam Darya Payam Darya

70 71 Report

sides road: expensive and the most important black gold cheap, prefers prices to be no producers in South America more expensive. So the US and the threat of global markets government has asked Saudi to remove Iranian oil from Arabia and some other OPEC international trade are the main members to increase their reasons for rising prices. production about one million In the same issue, oil minister barrels per day. By considering of Iran, Bijan Zanganeh in more profits and withdrawal of response to a request by the Iran from the oil market, Saudi president of the United States Arabia and some Persian Gulf from some of OPEC members producers have supported the to increase oil production idea of increasing production under Iran’s oil export ban said by 300,000 - 400,000 barrels that OPEC is not an American per day. Of course, the major organization, and oil should not of this increase should be be used as a political weapon done by Saudi Arabia that has against other countries. more floating capacity and can quickly increase its inactive Iran wants the oil market to fields, but it should not be be unpolitical forgotten that Saudi Arabia The oil minister of Iran has currently generates almost all emphasized that OPEC is not its capacity, and the expectation part of the US Department of increasing the production of Energy. OPEC is not an to 12 million barrels per day organization that obeys Trump. seems unachievable. This is a very important point. Trump believes he can order Saudi Arabia’s consonance OPEC. He has created problems with the American dissonance for the oil market by imposing instrument sanctions against two important That is why, despite the fact members of OPEC, and now that the president of the United wants and expects OPEC to States wrote on Twitter that change things. This is not fair. President Donald Trump’s the supply and demand in the prices in global markets. In oil storage in their countries. Saudi King Salman “agreed” Zanganeh said that “it is remarks on the need to reduce market could determine the fact, Donald Trump has made Therefore, despite the efforts in a phone conversation to important for us and some the global price of crude oil, final price of oil. mistake in anticipation of Saudi of Trump to convince OPEC increase oil production to roll other members of the saying that the treatment of Arabia and other oil producers to increase production with the back oil prices, but a few hours OPEC that the oil market be Trump with some members USA masochism in the oil to compensate for the drop goal of reducing oil prices, if the after the president’s remarks unpolitical,” he added if the of the OPEC is offensive. He market in production generated by US does not exempt Iran’s oil the White House announced: oil market is organized based added when Trump instructs On the other hand, asking sanctions against Iran, and it buyers, prices will rise again, “The Saudi king has said that on the principles of supply an independent country to not to buy Iranian oil by seems that the Trump is the and if price increases more his country would increase oil and demand, it will be in the raise production, because I am Trump and put pressure on victim of Saudi Arabia and than before, the likelihood of production if needed.” interests of the consumer and protecting you with the little European companies when several other oil producers utilizing US strategic oil storage While the president of the United the manufacturer. money I receive from you and Nigeria and Libya crisis claiming they could offset to balance the oil market will States talks about keeping He said OPEC needed to providing your security, it’s not continue, oil production in Iran’s oil exports of 2,500,000 arise, so it means higher prices. Volume.10 / Sep 2018 Volume.10 / Sep 2018 oil prices low, in cooperation support the idea that the oil true. Venezuela dropped, and bpd and encourage him to with some producers, the main market should be non-political Advocating the OPEC’s domestic consumption in take action against Iran. Now, The danger of NOPEC for reason for rising oil prices in and condemn any use of oil as approach, he added that OPEC’s Saudi Arabia will increase although they and Saudi Arabia OPEC the market should be sought in a weapon or tool against some principle is that the oil market because of summer, the action are selling more oil at higher In addition to the Trump’s its policies. In fact, sanctions countries. is not political and that political of USA is a masochism which prices, they do not produce predictions for the oil market Payam Darya Payam Darya of Venezuelan oil as one of Zanganeh criticized US factors should not interfere, so causes a sharp increase in oil themselve, but they supply from with cooperation of some 72 73 Report Close Up

producers, it is important to interested in ratification of this point and ultimate support of note that since 2000, the US law. the oil industry, and a better- Congress has begun examining modified OPEC is better than a various forms of the draft law American Misunderstanding destroyed OPEC. known as NOPEC. If the plan of Oil Cartel Nevertheless, with the turns into law, OPEC could be Donald Trump’s attempt for execution of Trump’s orders, the criticized by the US government decreasing oil prices, followed Saudi family and Saudi allies unti-monopoly for tampering by a fall in gasoline prices in the in OPEC are destroying OPEC with energy markets. United States, is on the verge of and their future, because US Furthermore, if the US is on congressional elections, and the president, who did not commit the verge of elections and high president is struggling to reduce on JCPOA and disregarded to gas prices are causing voters gasoline prices in the country in the United Nations, will not be discontent, political pressure order to hold the structure of merciful to them either. They on OPEC will increase. So congress as Republican to have should recall that OPEC was Will Yuan Acceptance in LME Change what’s new now? Two former a simple way ahead of ratifying established with the initiative US presidents, George W. Bush the law. In fact, in the US of Iran and Venezuela in Iraq the Trend of Global Economy? and Barack Obama, threatened political atmosphere, there is a to fight and resist the political to use their right to veto in lot of misunderstanding about pressures of governments such order to prevent ratification of OPEC, and this will remain as as Trump and to protect OPEC’s the law. Now President Donald long as US fails to increase its members in 1960; so preserving In Search Trump is in power, and he is oil production dramatically. it can help in the global historic very dissatisfied with OPEC, Finally, it should be emphasized oil crises, such as the fall in accusing the organization of that, although OPEC has its own prices in 2015, and restore their of Globalization! maintaining a high oil price weaknesses, this organization economic deficit. as a monopoly cartel, so he is would still be the confidence

74 75 Memo

industry. Besides, it could strengthen China’s national currency both in the domestic and in international deals and payments. This way, China would become a much more interesting place for foreign investors. For years, China has been endeavoring to promote its national currency’s position in international payments and give RMB a more comparative power in its rivalry with other A Giant currencies. In this pursuit, the two mentioned measures were paramount steps. However, based on the latest Swift data, Leap in th RMB settles on the 5 position in this rivalry, after US Dollar, Euro, Sterling Pound and Fulfilling Japan’s Yen. Based on the report released by the Asia- Pacific, Europe, Middle-east and Africa executive of Swift, China’s despite the rising trend of China’s economic growth and the diverse strategic supports “One Belt, from China’s national currency, RMB’s use in international payments is still low and its acceptance rate is lower than One Road” the rate which is expected. The report highlights that the share of RMB in the domestic and international payments in Dream December 2017 reached only 1.61 %. Being home to 76 % of RMB Mahmoud Esfandiari Soluklu Mercantile Exchange manager in Export transactions, Hong Kong holds Development Bank of Iran Brokerage the largest share of transactions with this currency; and London, by hosting 5.59 % of RMB- based transactions is the largest Volume.10 / Sep 2018 Volume.10 / Sep 2018 The launching of this market by are going to be challenged. On May 21st 2018, news agencies quoted the managing director of London Metal Exchange, the world’s largest oil purchaser This matter could influence and out-of-China ground for deals Matthew Chamberlain, announcing that in the near future, the futures contracts of metal products means that the traditional control oil prices and as well, with RMB. China is the largest will be placed on LME board based on Renminbi (RMB). Approximately two months earlier in platform of dealing Brent Oil it could turn Shanghai Energy consumer of metal worldwide March 26th 2018, futures deals of petroleum based on RMB had begun to appear in Shanghai in London and West Texas Exchange into a major pricing and London LME is where the international energy exchange. Intermediate Oil in New York reference in this geopolitical largest number of metal deals Payam Darya Payam Darya

76 77 Memo

takes place. Making metal deals opportunity for Iran to sell in LME is extremely popular its oil using RMB instead of with Chinese investors and Dollar. manufactures, in a way that Dr. Rouhani’s Admittedly, it is going to take a while for Iranian investors to LME metal section sees more Government of and more action day by day. be able to enter LME futures Therefore, the recent action Prudence and metal market given that China of LME, which is launching Hope has pursued has been the largest purchaser futures deals of metal products worthwhile of Iran’s oil from the olden days based on RMB and accepting endeavors to revive and using RMB for payment has this currency as deposit for the attraction of been desirable for both nations. LME-operating banks and Nevertheless, London is a brokers, could be considered foreign tourists to strategic partner to the United a strategic bond to strengthen Iran again States and dealing with under- the ties between world’s largest sanction Iranian companies metal purchaser and its largest is a crucial redline that LME metal deals center. does not cross. Hence, there is In the light of this measure, a big barrier ahead of Iranian China moved one step ahead investors in LME. in fulfilling its highflying On June 11th 2018, Iranian dream of superseding Yen, Economy secretary signed 4 Sterling Pound, Euro and then MOUs with China. One of US Dollar in international these MOUs, which was signed deals. Particularly in case of between Iran’s Economy recent months, when the trade Department and China’s and tariff war between the Infrastructure Development United States and China has Organization, was regarding reached its highest heat, this the financial resources of the new development in LME is two countries for investment increasingly significant for and the use of Rial and RMB China, as it is a trump card for business trades. Another for this country to challenge document was regarding collaborations in terms of stock US Dollar and create a retrieving its days of glory with contributions to completing the exchange and securities, which turning point for its national the ancient Silk Road. service package LME offers to was signed between the two currency. What confers added The new development will its dealers worldwide. countries’ exchange authorities. significance to this matter is bring about massive profit for In addition, investors from China moved Investors from In the light of these agreements, that the unforeseeable measures LME by more and more Chinese countries that are under Dollar one step ahead countries that establishment and expansion of President Trump question customers being attracted to sanctions by the United states, in fulfilling its are under Dollar of mutual and multi-faceted and weaken the legitimacy of it. Using RMB for making such as Iran and Russia, are collaborations between China’s the United States as world’s highflying dream of futures deals significantly absorbed to this market with sanctions by the and Iran’s goods and energy economic leader and passes superseding Yen, reduces the dealing and fewer obsessions and lower United states, such exchanges can increase the this position to world’s second Sterling Pound, Euro currency-exchanging costs of costs through dealing with as Iran and Russia, activities of the two nations’ largest economy i.e. China: Chinese manufacturers and RMB. Following the launching The China which intends and then US Dollar are absorbed to this in one another’s markets. This Volume.10 / Sep 2018 Volume.10 / Sep 2018 as well, it reduces the risk of of futures oil market with RMB in international market with fewer act, along with using RMB for to strengthen its position in foreign exchange transfer for in the international energy oil and metal futures markets world’s economy and trade deals. them. Customers would have exchange of Shanghai, Oanda obsessions and can eliminate the deterrents by its “One Belt One Road” the luxury of choosing their Asia-Pacific Head of Trading lower costs through and fortify Iran and China’s plan (also known as “Modern method of payment and this Stephen Innes stated that dealing with RMB. economic and political ties. Silk Road”) and to become the matter would make valuable this exchange is a matchless Payam Darya Payam Darya world’s main trade center by 78 79 Interview

became the second economy power in the world of economy. Presently, this country is trying to precede the U.S. and become the superpower of the economy globally. Meanwhile, there are ample of conflicts between the two nations in different projects such as minerals and steel in LME Welcomes the which the china is followed by the U.S. however, to be the leading economy of the largest economy world, it is not sufficient to be powerful one in one field of activity. Personally I believe that china has a great chance of the world in the to become the first economy of the world mainly due to the permanent presidency of Mr. Xi Jinping. He is the only one near Future to drive China to become the first power of the world. In addition, he introduced many new projects such as building a big city as well as the most important project of OBOR which later change and named “Belt and Road Initiative”. This project consists of one road by sea from the eastern part of china to the northwest of Africa and five or six roads by land that passes from northern part of Iran, i.e. CIS countries. Besides, one of the other major roads passes across Pakistan and from the city, Kashgar- officially known, as Kashi is an oasis city in Xinjiang, located in the western part of China and is Afghanistan’s neighbor- What is the history behind by Yuan or RMB based on to being connected to Gwadar The LME, owned by Hong Kong Exchanges and Clearing (HKEX), recently allows traders Volume.10 / Sep 2018 Volume.10 / Sep 2018 forward purchasing of metals port in Oman Sea. China is to use the Chinese currency as collateral. HKEX last July has introduced Yuan-denominated the proposal and suggestion attempting to make an approach gold futures. Considering a sign that RMB or Yuan in international finance is on the rise, PD which are conducted by RMB presented by China, I am sure to the Oman Sea and the Persian conducted an interview with Keyvan Jafari Tehrani, Steel, Base Metals & Minerals International in LME? you know that this country is Gulf. It aims to do the large Market Analyst to clarify the objective of such a measure and at the same time to magnify the Regarding the first question the second largest economy proportion of oil imports by significant impact of this big change on the trade globally. The transcription of this interview is focusing on the reason behind of the world. China passed deals that are recorded in LME Japan during 2005-2008 and this railroad in the near future Payam Darya

Payam Darya readable as follows:

80 81 Interview

or through a pipeline which is 300,000 DWT and it is one of railroad to protect the ships and encouraging china to build to be the world’s first economy parallel to the road. It easily the biggest vessels in the world commodity from the hands of trades by RMB? during 2023/2025 encourages could manage the transfer of oil which is one size smaller than pirates who attack to the tanker Considering the pivotal role of LMB to support all the trades from Gwadar port to Kashgar the valemaxes vessels and carry and steal assets of the ships in china in producing a variety built by RMB. and then to some networking iron ore from Brazil to china and Somali and Bab-el-Mandeb. of products, it is one of the rails all over china. other countries of the world. To prevent such occurrences major index determiners of the What will be the effect of As you might know, most In line with this, a significant china selected Malacca strait as LME. LME products cover all this measure on commodity imports of china has been motive lies behind such a the main route to transfer oil to the metals, base metals and exchanges and commodity happen through Malacca strait measure taken by Chinese and the eastern part of the county steel and it is one of the main markets of the world? and by exploiting Malaccamax that is the security preference. without taking any risks. advocates of China due to the I believe that generally some vessels which is equal to three As mentioned earlier china crucial function it carries as exchanges in the world would tankers. The capacity of each imports oil from the Oman What is the aim of LME both producer and consumer. not be happy and satisfied Malaccamax vessel is almost Sea through pipeline or the (London Metal Exchange) by Moreover, having the chance by this measure taken by China. Definitely, China is to provide the basics for Dalian and Shanghai exchanges to be the leading ones in the near China is attempting future. Therefore, if this action is being admitted by other to make challenges exchanges due to the fact that with them to china is the largest buyer and become master seller of the commodities, they in most of the will be disappointed. In other transactions not words, china is attempting to only in the exchange make challenges with them to become master in most of the companies but to transactions not only in the become the leading exchange companies but to exchange market of become the leading exchange the world. market of the world.

Considering the dollar- oriented trades, what is the impact of this measure on the international economy and global market of money? Obviously, this brings about weakness in the U.S dollar and other currencies. Weak in this context does not mean the value reduction or devaluation of dollar. It means that when Volume.10 / Sep 2018 Volume.10 / Sep 2018 RMB become one of the major currencies to build a trade in LME, many people who are one side of the transaction with China may be affected. For instance, some countries Payam Darya Payam Darya

82 83 Interview

including Iran, exports iron The reason lied behind that is advantage to avoid first there. However, the Kunlun bound to the common currency system or SWIFT. ore or other minerals to china directly related to the people problem stock due to the. In line Bank is no longer strong and due to the sanctions. Since the existence of the or sometimes one might buy eagerness to immediately fill with as you might know, there active. There is a possibility of Regarding how IME positively sanctions and the impossibility some products from China. In the gaps as they know the value was a bank called “Kunlun reaching a conclusion between would become one of the of a connection between Iran both cases when one side of of dollar and bought a large Bank” during the sanctions Iran and china and consequently international exchanges and banks and international banking the transaction is China, traders amount even when it reached era which was responsible for some new banks would start come to the international board, system/ SWIFT, IME would not around the world prefer to deal to 10/11 thousands Toman. the exporting moneys gained operating. Moreover, in my I might say a difficult way is be able to demonstrate its real in terms of RMB. In this case, a However when it comes to from Iran. Meanwhile, some perspective, there should not be expecting us. It depends on how position. country such as Iran that suffers RMB, one has to calculate and imports happened as well and any worries regarding the Yuan the IME is being connected from the tremendous sanctions divide the currency by 6.5 to the earning from that was kept business since traders are not to the international banking is not able to do the trade by the find how much it is in RMB U.S. dollar. Therefore, I believe which is not really simple and that this measure has a negative clear for the majority of people. influence on the U.S. dollar and As you know in Iran the most other major currencies as Euro traders, businesspersons and in the international trade market. companies are not selecting Euro. Considering the What are the advantages sanctions, companies record and disadvantages of such a documents of invoices for measure? instance to avoid facing any China is the one to enjoy the challenges. Moreover, focusing most benefits gained from the on the price of any commodity, action due to the fact that in people first value it by the building any trade with distinct U.S. dollar. Therefore, the currencies obviously you are shortcoming of such trades is obliged to pay more to exchange the unfamiliarly of people with it and then the exchange rate the national currency of the will directly affect the finalized origin or destination country deal. Put in other words, when in general and with RMB in trade is carried through the particular. national currency of one country specifically china and in term What benefits will be reflected of Yuan or RMB, that is china in metal market of Iran and to get advantage resulted from to what extent it will provide it. In this case, china avoids the internalization of Iran paying on the basis of exchange Mercantile Exchange? rate to lose money. Obviously as I explained earlier Other side of the coin most of the Iran’s traders demonstrates that countries choose china for exporting base who are not familiar with metals or minerals which mean Chinese currency are the only that at least we sell copper, iron one to suffer from the measure’s ore concentrate, Chromium Volume.10 / Sep 2018 Volume.10 / Sep 2018 clear drawback. For instance, (concentrate) to china because the common currency in most this country is the main producer of the commercial deals is the of the base metal trying to buy U.S. dollar even it is under the materials. the sanction in Iran at present. Selling true RMB is an Payam Darya Payam Darya

84 85 Report

It all began when a man grew up to be the emblem of the post- World-War-Two modern world: A man whose only plan was opposing. He opposed whatever mankind had achieved on its way toward peace, establishment and steadiness. He opposed stability and economic ties: Two terms which came to be known as sacred in the modern world of after World War II.

From the very first day he countries, hoping that the world stepped foot in the White could do away from war. In House, Donald Trump laid the the pursuit of this goal, a novel foundation of his decisions concept emerged in the world’s on the principle of opposing political literature: realpolitik. all collaborative rules and Following the world war and contracts. He questioned all the surviving the 1930s rising- I disagree; constructs of the modern world from-mercantilism economic by his famous AMERICA recession, the world well learned FIRST motto. What is wrong that the two most paramount with this motto that has keys of balanced economic Therefore, I am. caused all this distortion and development are consumerism disharmonies? and comparative advantage. “Leftists did not have any strategies at the beginning. Following the World War II The former was a significant They opposed and only opposed. They opposed whatever and the social contracts that reason for the production of that was stated or done.” were devised to walk toward various instruments and hence Raymond Aaron sustainable development and ease man’s life; however, it aversion from war, economic was the latter that led to the balance and ties came to novel concept of comparative the spotlight. In a universal advantage. The principle agreement, countries came of comparative advantage to understand that the only suggested that countries should way to avert ruinous wars to move away from nationalization build a world where economic and focusing on what is within benefits are divided among all them; instead, every country nation states in a fair (yet not should develop and expand necessarily in an equal) manner. its most powerful economic This division meant that all aspect and share its benefits countries were involved in the with the world. Only this way same source of benefits, and no would economic entanglement country would attempt starting emerge, and it indeed did. a war just because it was left Nevertheless, the day-by-day Volume.10 / Sep 2018 Volume.10 / Sep 2018 out of economic gains. development and the ups and The fundamental principle of downs in global economy, post-war world and moving on China’s entrance to common from the age of enlightenment economic markets from the was establishing strong mid-20th century, and the large economic entanglement among population of this country Payam Darya Payam Darya

86 87 Report

economy of the United States If avoiding conflict is considered barrels within a certain period, alone was twice as large as that to be the main aim of economic the United Arabic Emirates of China and almost as large as entanglement, and if interests and Saudi Arabia, as followers Europe; hence, he utilized this and benefits are supposed to If competition of Trump, were the only two superiority to push the economy be shared within this theory, occurs in the price countries that expanded their into distortion and disruption then all the role players in oil production to stabilize oil with a retreat. the entanglement share all and in quality, price. Yet, the negative look One main reason why countries the profits and all the losses. there is no denying at the global market caused began to share benefits and Indeed, an unwritten rule in this that some this increase to fail to fill the interests could be moving on game is that the “advantage” American industries gap. Accordingly, after 18 from pointless conflicts and is in “competition”; and once have now lost months of freezing petroleum, reviving from the economic competition is established as a world’s strategic reserves were recession caused by setting principle, its outcome would be their comparative noticeably diminished and a tariffs (mercantilists pushed a successful product that could advantage. miscalculation happened again. the world to the threshold of meet the needs of the consumer. Today’s economic world collapse by setting tariffs in If competition occurs in the is the host of an invited the 1930s). In order to prevent price and in quality, there is no guests, and that is Trump’s such bitter experiences from denying that some American misunderstanding of the market happening again, countries industries have now lost where economic entanglement decided to find a solution to get their comparative advantage. is deeply seated. Trump is rid of unnecessary bureaucracy As a case in point, in metal recognized as a conservative; and restrictive tariffs; and that industries, some countries – however, if we accept the solution was nothing but the namely China – have expanded famous Hayek quotation “The establishment of World Trade their steel production capacity left end (Bolshevism) and the Organization (WTO). The to 1 billion tons a year and have right end (Fascism) all fall on organization was founded in the thereby established a dominant one point, and that is radical pursuit of increasing economic advantage for themselves. In leftism” and we also accept trade among countries, which short, based on the objectives that the basic left economic happened to be the ultimate of establishing WTO, each theory is the nationalization pushed the world toward a economic entanglement. goal of globalization theory. and every member country of economy, we reach the massive and comprehensive Based on what has been In an unprecedented action, must uphold the principle of This unrecendetned-in-the- conclusion that Trump’s reform to protect its post-war discussed so far, if we admit trump decided to set tariffs on competition. last-7-decades unfamiliar populist behavior in domestic achievement: Establishing that the universal acceptance of foreign products in order to This principle, however, is and unadjusted perspective realm and bullying behavior multi-national corporations. comparative advantage theory compensate the trade deficit the one which is not warmly of the United States new in foreign realm is a cartoonist Following the implementation was one of the achievements of of the United States, return of welcomed by the new economic administration was applied picture of radical leftists. This of Deng Xiaoping’s thoughts, post-World-War-II world, we the multinational corporations team of the United States to the nuclear deal with Iran picture best reminds us of the the seemingly-socialist China can argue that trade balance lost to the United States (even administration. They believe as well, and drove the US French Jacobin, whose motto entered the capitalistic world, its classic meaning: Formerly, though their shareholders that positive trade does belong to withdraw from JCPOA. was “Freedom, Equality, and relying on its inexpensive the turnover of money are mostly American) and to the United States only. Breaking an international legal Brotherhood; otherwise, workforce and its large was considered extremely tackle unemployment. Admittedly, this perspective is deal of such a scale injected Death”. consumption market, this significant in economy, yet, This measure (i.e. return to prone to severely disrupt the tremendous fear into the global It looks as though the wandering country managed to revive its after many years, someone domestic industries) might be world’s economy given that oil market and caused such an soul of Fascism is now lost glory. This matter managed took the lead on world’s deemed as a legitimate right other nations might start holding abrupt in the prices that the US emerging in economy, it has for every country on the look the same view and propose that inspired bullying in the United Volume.10 / Sep 2018 Volume.10 / Sep 2018 to save the world from the economy and free trade who market itself was the first one to grave massive 2008 crisis. That once again made a shocking of it; nonetheless, it is in total the MUST have positive trade. bear losses. States president, and it has is to say, the spirit of economic flashback to concepts such as contrast with the final outcome This anarchy is a grave threat Even though in the 175th raised distortion and disruption convergence was inspired in “nationalization”, “domestic of globalization, which is to maintaining the comparative meeting of OPEC, member in the world, which has a very multinational corporations power” and on the top of them creating added value through advantage theory and hence countries decided to increase short password: I oppose all for the purpose of promoting “trade balance”. In fact, the joint efficient actions. is a threat to globalization. their production up to 1 million your achievements. Payam Darya Payam Darya

88 89 Report

Oil Market Turbulence the trade war between USA and China threatens global economic growth to be affected. This trade tension will subsequently weaken the economy of both countries and the role of trade and, overall, will reduce China’s crude oil demand. This will not only affect USA and China, but it can also affect war in it many other countries

By: Elham Ghorbani

What’s going on in the global months of 2018 fell by more rise in prices and compensate Oil, traded at the highest price in the last three years, faces many challenges, such as supply disruptions oil market these days? than 50 percent to 527,000 for the decline in world Volume.10 / Sep 2018 Volume.10 / Sep 2018 in Libya and Venezuela, and the reimposition of sanctions against Iran, which has led OPEC members Concerns about the decline in barrels per day (bpd). In May production of countries such and their allies to unite to boost production. In this situation, the drop in U.S. reserves and the decline Libyan oil production have 2018, Saudi Arabia, OPEC as Libya. of production in Norway and Gabon also add to the risk. In top of all of these issues, the trade left the price of this substance members and allies such as With the strike of Norwegian war between USA and China threatens global economic growth to be affected. This trade tension unsustainable. The Libyan Russia agreed to increase their oil workers and the decline will subsequently weaken the economy of both countries and, overall, will reduce China’s crude oil oil production in the first five production in order to curb the in Norwegian oil production, Payam Darya Payam Darya demand. This will not only affect USA and China, but it can also affect many other countries. 90 91 Report

U.S. shale oil production has in the last two months (June and this reaction from China is not been record-breaking and July 2018). impossible. has the potential to offset the However, the United States Under such circumstances, the reduction of production in has seriously planned to invest United States has been waging Venezuela, Iran and OPEC, on infrastructures which are a massive crisis with more it will only be possible if the not available today in order to extensive tariffs against the infrastructure is provided. could export its oil products in country with the largest import Excessive oil prices will the near future. For example, capacity in the world, as well as subsequently destroy the only one gas pipeline project of the re-imposition of sanctions demand for this commodity 800 miles (1287 kilometers) in against the world’s fifth largest and could result in reversing Alaska has cost $ 43 billion to oil producer. It also destroy the OPEC’s ambitious efforts to transfer LNG from the United maps of OPEC members and tighten market conditions. States to China, and it would non-members, because with Consumers in key economies not be possible to expect such this country’s policies, retaliate such as Brazil, USA and a huge amount of cost will be of other countries will change India have expressed their ignored in this trade war if the origins and destinations unwillingness to raise oil prices. China stop importing its LNG of trade, which will add to the In India, gasoline and petrol from the USA. By considering tension of the market. prices peaked in May 2018, and the intensity of USA actions, the government was forced to Opportunity-makers threats which occurred for the first as motor fuels, kerosene and government had set up to reduce prices by reducing taxes. Before discussing on time in the last six years, the naphtha. So, Asian refiners impose tariffs in response to Similarly, in Brazil, because of commercial balance of USA and oil market is getting worse. have taken action to supply USA tariffs, experts believed the high price of gasoline, truck China made the start of a trade Royal Dutch Shell shut down their demand, as they predict that it will be subject to import owners applied for a strike, and war, two informed officials the North Sea oil field and its that the USA-China trade war tariffs in the future because it is subsequently the government announced that China tried to workers have threatened to will intensify as well as USA the only critical way. However, was forced to reduce taxes. offset its trade deficit with the strike. In Gabon, on the west has tight plan to stop Iranian oil China’s crude oil imports from Also, the price of gasoline in United States. So, Sinopec, coast of Africa, oil production exports to foreign markets. the US dropped 226,000 bpd in the United States has come to the largest Asian refinery in in the sites of Total company While the Chinese authorities July 2018, while in March 2018 a level which needs political The United States China, ordered crude oil from fell by half in June after strikes are seeking retaliation for U.S. the record was 445,000 bpd, reaction, and each gallon is has been waging a the United States by the highest began. In Venezuela, production actions, the state media of this according to reports. traded at $ 3. As a result, short- massive crisis with level. The trading arm of this dropped in the sixth consecutive country condemned the Donald An increase in U.S. shale oil term oil prices will be at a high refinery, Unipec, bought 16 month and reached to the lowest Trump’s government to the production could offset the level, as U.S. shale oil will not more extensive million barrels (about 533,000 level over the past 15 years. “gang of hoodlums “. market supply deficit, but be able to reach the market tariffs against the bpd) of US crude oil for loading In the first line of this war are rising margins between the and OPEC members’ demand country with the and shipping in June 2018, U.S. headache worsens oil U.S. crude supplies to China, two pricing indicators, WTI will also be tightening market largest import and this volume of monthly market dizziness! which have improved from and Brent, suggest that current conditions. purchases in the history of this When USA unveiled a new nearly zero before 2017 to infrastructure is the main capacity in the The United States is the world, as well as company was unprecedented. list of $200 billion tariffs on 400,000 bpd in July. limitation of the US crude oil world’s largest exporter of The U.S. oil export infrastructure Chinese goods, made a harsh Although U.S. exports account supply to the market. The lack of bunker (such as gasoline and the re-imposition of development is on dilemma tension in global oil market for only 5 percent of China’s infrastructure for transmission petrol), and plans to expand it sanctions against to continue the process, as and the price of oil reached total crude oil imports, pipelines in the Midlands to by 2019 to become the largest the world’s fifth its recent oil exports record to $74 per barrel. If this list is American suppliers earn $ 1 deliver crude oil to the United LNG exporter in the world. largest oil producer highs, and China has been had implemented, it will directly billion monthly for this volume States Gulf, the inability of The country’s LNG export in a big role in these records more Volume.10 / Sep 2018 Volume.10 / Sep 2018 affect about half of the total US of exports at current prices, tanker terminals to serve 2017 was worth $ 3.3 billion. than ever before. U.S. crude imports from Asia. In addition to and this will undoubtedly be large vessels, limited storage However, China, which is the oil production reached 10.7 consumer items such as clothes, reduced by the new tariffs. capacity and increased labor world’s largest oil importer, m bpd, driven mainly by the TVs and refrigerators, some However, the U.S. crude was costs are only part of the limits has severely restricted LNG increase in West Texas shale other listed on the White House not listed in the list of 545 that prevent US oil shipments to imports from the United States oil production, which was list including, oil products such products that the Chinese farther destinations. Although Payam Darya Payam Darya

92 93 Report

Chart 1. Monthly Crude Oil Import of China over 3 m bpd. However, the conflict between the United infrastructures are insufficient States and China, as well as the to move this product out of the tensions between the United United States. Although the The trade conflict States and Iran, will not only U.S. shale oil price is lower between the United affect the oil market of these than the Brent rate, the discount countries, but will also lead on per barrel of this oil, is at the States and China, as changes in the quantity and highest level for the past three well as the tensions destination of imports and years, and is $ 8.09 per barrel. between the United exports of many countries, Now that China has threatened States and Iran, will some of which are Japan and to apply a 25 percent tariff not only affect the South Korea. on U.S. crude imports, and oil market of these But among the chaos, everyone Washington’s new sanctions is looking for opportunities to against Tehran will be imposed countries, but will hunt. If China imposes tariffs from November 2018, we also lead changes on U.S. crude oil imports, it will have to wait for more intense in the quantity provide the South Korean tool waves of oil markets in the and destination of for the purchase of U.S. crude world. This will stimulate the imports and exports oil, since the United States will Asian refineries, especially seek the market to sell its oil. In As shown in Chart 1, China’s in the 24 months leading up WTI recovered due to OPEC’s South Korea. As South Korean of many countries consequence, bargaining power total crude oil imports have to April 2018, we find that decline in oil production. More economy is heavily dependent in the countries of the region been steadily increasing overall, the trade of this commodity is recently, as the U.S. president on trade, it is not at all in favor will rise, as American retailers in large part because of the high so important that something has threated to impose new of the global crisis as a result of have already made discounts profit margins of refineries. In equivalent to it cannot be found sanctions on Iran, the oil prices the conflict between China and on their crude oil to maintain the first four months of 2018, in the current market. Therefore, have raised more than before. In the United States. their market share. On the China imported 151.5 million threating any country by April 2018, the average Brent Previously, analysts and other hand, China is likely to tons of crude oil, up 8.9 percent limiting its trade (import or and WTI prices were $ 71.6 and energy activists involved in increase purchases from Saudi compare to the same period in export) in this section will be $ 68.8 per barrel respectively. the development of LNG intensified war of tariffs, Arabia, Russia, the United Arab 2017. really detrimental. After oil In 2017, these figures had a infrastructure believed that an executive from China’s Emirates and Iraq. Based on Chart 2, and looking prices reached $ 30 per barrel in growth of 35.2% and 31.9%, China’s desire to offset the Dongming petrochemical at the trend of rising oil prices early 2016, Brent crude oil and respectively. trade balance with the USA Group, as an independent refiner China is a valuable member could lead to an increase in from Shandong province, of oil trade market Chart 2. WTI and Brent Average Prices in last 24 months energy imports from the USA to announced that his company Now, if China wants to use China, and this would lead to an had canceled all its crude oil this tool, the restriction or expansion of ethanol sales and orders from the USA. He said prohibition of the imports of help to prosper the activities the Chinese activists expect the U.S. crude, what space will of the LNG production plants. Chinese government to impose open for others to operate, and Although initially Washington tariffs on U.S. crude imports, what will be the threats and and Beijing, following the and he will provide its group opportunities? talks, had been backing the orders through suppliers in the For the last five years, China’s trade war, and the USA wanted Middle East or West Africa by oil imports have been described China to rethink about its then. The JTD Energy Group in Table 1. Considering China’s industrial policies, by imposing also announced that it would capacity for import from U.S. Volume.10 / Sep 2018 Volume.10 / Sep 2018 new tariffs on imported goods be possible for China to replace oil products, whether the from China by the USA, the Iranian oil with crude from U.S country such as USA will be trade tensions between the as the Chinese importers are able to prosper by imposing two countries intensified, and not afraid of being punished by tariffs for a country with such accounts and actions collapsed. U.S. sanctions. potential or it will incur losses At the beginning of the It should be noted that the trade in turbulent oil market? Payam Darya Payam Darya

94 95

97 97 96 96

important measure taken by Deng was a change change a was Deng by taken measure important Payam Darya Payam Darya

Chinese who objectified this belief by economic economic by belief this objectified who Chinese

agriculture to revive China. However, another another However, China. revive to agriculture

that there is not an end to their life, but it was the the was it but life, their to end an not is there that

on the other side of Mao’s views who selected selected who views Mao’s of side other the on

Once upon a time, the British Empire believed believed Empire British the time, a upon Once

industrialization of the country that was exactly exactly was that country the of industrialization

caused them to sweep the entire East. East. entire the sweep to them caused to replaced for structures. Therefore, he started started he Therefore, structures. for replaced to

country’s ideal power which consequently consequently which power ideal country’s development and improvement behaviors have have behaviors improvement and development

Volume.10 /Sep2018 Volume.10 /Sep2018 the was China for economy flourishing The ideology of the time and to move through through move to and time the of ideology

that was economies build politics once again. once politics build economies was that population he has to pass through the dominated dominated the through pass to has he population

economy, they relied on the Marxian predicate predicate Marxian the on relied they economy, he clearly figured out that to manage such a a such manage to that out figured clearly he

While they followed capitalism in the the in capitalism followed they While . economy country under a united flag. flag. united a under country

this country not in politics, they must enter the the enter must they politics, in not country this gained the leadership of the most populated populated most the of leadership the gained

heavens’ empire, which is rooted in myths of of myths in rooted is which empire, heavens’ abandoned during his life. After his death, Deng Deng death, his After life. his during abandoned

achieve their nostalgia, the revival of the the of revival the nostalgia, their achieve political critic of Mao in a way that he was was he that way a in Mao of critic political

The Chinese, who realized that in order to to order in that realized who Chinese, The mass starvation was considered as one of the the of one as considered was starvation mass

global arena! global Deng who had to manage the country after a a after country the manage to had who Deng

on its amazing work force! Reconstruction in the the in Reconstruction force! work amazing its on the new leader. leader. new the

country to begin reconstructing China depending depending China reconstructing begin to country Party of China- when Deng Xiaoping became became Xiaoping Deng when China- of Party

country made it possible for this great East Asian Asian East great this for possible it made country Zedong- Former Chairman of the Communist Communist the of Chairman Former Zedong-

the Chinese Communist Party and the law of the the of law the and Party Communist Chinese the evolution, it came back to the death of Mao Mao of death the to back came it evolution,

The inclusion of Deng’s ideas into the charter of of charter the into ideas Deng’s of inclusion The if we are keen to have an exact look at the the at look exact an have to keen are we if

investors. investors. china could change its economic process and and process economic its change could china

industrial complexes and attracting foreign foreign attracting and complexes industrial Given the most populated country of the World, World, the of country populated most the Given

took step in the development route by building building by route development the in step took the significance of this news. news. this of significance the

Moreover, he reconstructed his country and and country his reconstructed he Moreover, news during the last months, one could argue argue could one months, last the during news

the free market by passing these two views. views. two these passing by market free the the most important and considerable economic economic considerable and important most the

industry and china on agriculture, Deng entered entered Deng agriculture, on china and industry Considering this measure by LME as one of of one as LME by measure this Considering

representative of the socialist economy based on on based economy socialist the of representative capability to be dealt in the exchange market. market. exchange the in dealt be to capability

Considering the Soviet Union which was was which Union Soviet the Considering China’s currency as the one having the the having one the as currency China’s

in a society-oriented behavior to free market. market. free to behavior society-oriented a in London Metal Exchange (LME) admitted admitted (LME) Exchange Metal London

Against Weber Values! Weber Against

Confucianism Rebellion Rebellion Confucianism

Communist Party of China- when Deng Xiaoping became the new leader. new the became Xiaoping Deng when China- of Party Communist

evolution, it came back to the death of Mao Zedong- Former Chairman of the the of Chairman Former Zedong- Mao of death the to back came it evolution,

its economic process and if we are keen to have an exact look at the the at look exact an have to keen are we if and process economic its

Given the most populated country of the World, china could change change could china World, the of country populated most the Given in the Economy of the World? the of Economy the in

Will the Acceptance of Chinese of Acceptance the Will Yuan in LME Result in an Important Change Important an in Result LME in Yuan Report Report

development and exporting their products. of the market, began to shut down some of its In the meantime, the post era of the World War manufacturing units in this section promised to Glance II as well as globalization gave hand to china to return by more efficiency, and this happened in awake for one more time. 2012. Since the 21th century began, world media After the calmness of financial crisis as well repeated one thing for several times and that was as urgent need of the people to steel aiming the amazing and unbelievable growth of China. at reconstruction, Chinese could record in In line with this, Chinese who found out handling production and practically affect the deal market the world market needs development in their of steel. economic measures soon concentrated on one of Based on what has been discussed so far, the key economies of the word i.e. steel. 700-million tons of world steel production was Because if the development and economic a new record. However, following receding integration were to be thought of as a product of global financial crisis and urgent need to steel Western thought, in order to conquer the castle for reconstruction, China has revised the market it required the use of the western method. Then, and managed to record a remarkable production Chinese exploited the view that steel in the tool of one-billion tons, in a way that this trend has of development and started creating massive had a meaningful influence on the steel market steel mills. and its trade. This meant that the country needs the raw When it comes to metal deals especially steel, materials of this industry including iron ore and one might refer to the pricing market and the its derivatives like pellets and coke more than main axis of transaction and that is London Metal elsewhere in the world, and that was the point Exchange (LME). where all the ships carrying iron ore and other London and its metal exchange are of utmost required material of steel production found an importance due to being both the financial market important destination: It’s China! of the world and providing the accommodation for This caused china to be determiner of two key one of the future largest markets in it. Presently, elements in trade. Considering the urgent need LME admitted Yuan as the acceptable currency of china to the first raw material to develop and in the market’s transactions and this event brings create several manufactures, it became the largest about a shock to the economy of the world. buyer of these materials and affect the price to The Chinese, which had suppressed the value the large extent. Secondly, marine transportation of Yuan against the dollar over the years to gain particularly bulk section concentrated on China advantage over other countries, is currently more than ever due to the huge volumes of mine increasing the Yuan’s strength, which means that productions moving toward that country. the dollar, after the collapse of the Bretton Woods Each increase in steel production would shift system, is a big boom and faces an important the price index in the iron ore market and bulk competitor. transportation to the point where the world which Moreover, Chinese concentrated on the economy produced 600 million tons of steel in various and finally they successes to alive their rights types before 2008, gained a 70-percent share of globally. Now, this phenomena of being admitted china producing 700 million tons by the end of by LME means that not only Chinese learned the Volume.10 / Sep 2018 Volume.10 / Sep 2018 2007. rules of the game but also they are planning their standardization! However, 2008 was the beginning of the economic own model; a model which is going to be created crisis in the world (based on the real estate crisis not based on the “The Protestant Ethic and the in the United States, where the real estate crisis Spirit of Capitalism” but on the Confucianism means a reduction in the global need for steel), thoughts. Payam Darya Payam Darya the China which has gained a new understanding 98 99 Inteview

through improved connectivity for ships. BIMCO Secretary General and CEO Angus Frew: BIMCO’s contribution – along with its partners - was the Maritime Reporting Model (MRM). The environment This prototype model aims to standardise communication between ships and shore. The key lies in ensuring each type is probably the of information a ship needs to share is associated with a unique name – a tag – that software developers must use. biggest issue Using a global standard for tagging information – such as the ship’s name or the number of crew onboard – in software on our agenda systems can make sure that the information transmitted by the ship always ends up in the By: Fatemeh Moonesan correct ‘box´ at the receiving end, no matter who the recipient is. In more technical terms, it is a harmonisation of data models As you well aware, used by maritime stakeholders. Digitalization has received a Reducing Greenhouse Gas Our prototype has shown lot of attention in the recent (GHG) from that the MRM can reduce years, what are your plans shipping industry is a the administrative workload for promoting it across the significant issue that for ship masters by 80% in industry? needs strong action. connection with port calls, so Digitalising the industry is Moreover, Digitalization we will continue to pursue this one of the keys to unlocking and potential threat of standard. efficiencies that can benefit Cyber Attack should be In general, you can say the industry from both an addressed more than ever. we are very focused on economical and environmental In order to collect more standardization, as the shipping perspective. BIMCO’s role on these issues and other industry needs global standards is very much as a facilitator important issues in the to achieve the optimal results of projects and bringing the shipping industry, Payam when digitalizing. industry together. Darya magazine has An example of that is We recently finished our role in conducted an exclusive our standard for software the EfficienSea2 project, which interview with BIMCO maintenance developed was an EU-funded project. The Secretary General and together with CIRM (Comité Volume.10 / Sep 2018 Volume.10 / Sep 2018 overall project was to create CEO Angus Frew. You International Radio-Maritime). and implement innovative and will browse the transcript The goal of the Standard on smart solutions for efficient, of this interview in the Software Maintenance of safe and sustainable traffic at sea upcoming section. Shipboard Equipment is to make sure software updates happen in Payam Darya

Payam Darya a secure and systematic way. It

100 101 Inteview

realistic and practical. BIMCO point. That said, the industry is a very practical organisation, needs to invest in innovation so we try to make sure our and technology. We need more members have the information The other major efficient ships, but I think they need to make important agenda point is ports have significant ways to business decisions. We also improve the entire industry’s voice our opinion at the IMO to Green House Gases. efficiency. make sure the Member States I think we can reach get accurate information to help zero emissions in What is often overlooked is the them make good choices on the second half of performance and execution of how to implement the decisions this century, and we port calls. Ships all too often they are asked to make. are very satisfied speed up to arrive at a port on We are working hard to make time, only to be instructed to sure there are practical rules with the Green House Gas strategy await free berth at anchorages and procedures in place for the outside the port. This means adopted by the IMO. upcoming 2020 sulphur cap. It that a lot of energy is wasted to is clear, that the industry has power ships through water at too many concerns and questions on high speeds just to sit idle after this issue, and we have several arrival. It is about maximising people working on drafting time spent at sea executing a practical proposals for IMO. voyage with the lowest possible We are also collaborating with constant speed, BIMCO has the other industry organisations, calculated that this can reduce such as the International will increase the visibility of to more effective port calls. and countermeasures to protect GHG emissions by as much as Chamber of Shipping, to make 20% on such voyages. the software installed on board, against cyber-attacks. sure that we speak with a united ensure the effective planning The cybercrimes that are voice on these issues. How do you evaluate Iran’s of maintenance and facilitate What plans do you have on commercial systems are The other major agenda point cooperation with BIMCO? effective communication for fighting against Cyber however not BIMCO’s main is Green House Gases. I think In light of the new US between the different parties Attacks? focus, as other organisations we can reach zero emissions in sanctions, we are taking advice involved in maintaining the and companies are specialized the second half of this century, BIMCO is mainly focused on on the necessary treatment of software. Keeping software in that. BIMCO is instead and we are very satisfied with the ship-side of cyber security BIMCO’s members based in up to date is also necessary to speaking to ship yards and the the Green House Gas strategy because of the many onboard Iran. BIMCO is an international minimise hacking and malware International Association of adopted by the IMO. IMO operational technical computers association with no legal entity problems. Classification Societies (IACS) outlined a target to reduce GHG that needs to be protected. or office in the USA; despite We informed the IMO about the about building cyber resilient emissions by at least 50% by On the IT side the shipping this, we believe that there will be standard in December 2017 and ships in the future. 2050 compared to 2008, and industry is – like any other some restrictions placed upon BIMCO and CIRM have asked we see that as ambitious, but ISO to turn it into an ISO- industry– exposed to various BIMCO and the services we not impossible. We think the provide to our members in Iran. standard to make it more robust. forms of cybercrime, such There is an increasing industry can deliver on this We will continue to evaluate ISO has accepted the proposal as ransomware, or fraud pressure for shipping to be target, even though we aren’t our approach and will notify and the work is on the verge committed using fake websites greener and more sustainable, sure exactly how to do it. our members in Iran at least a of starting. BIMCO expects a or emails. what strategies are you going I find it very encouraging that month ahead of the deadline Volume.10 / Sep 2018 Volume.10 / Sep 2018 working group to complete the Together with HIS Markit we to take in this regard? standard in 2022. are doing a big industry survey the shipping industry probably of any actions that we will be Ultimately, we would also on the issue of cyber security. The environment is probably peaked its CO2 emissions in obliged to take. Our members like to see digitalization and Information about how the the biggest issue on our agenda 2008. And we are in fact the are of course always welcome standardisation in the interface shipping industry is affected is right now, and our strategy is only industry in the world with to reach out and discuss their between ships and ports. an important tool if you want to make sure that the rules, a fixed reduction target at this membership with us. Payam Darya Payam Darya Digitalisation should also lead to create the right procedures regulations and targets are 102 103 Report

Emission of greenhouse gases of human origin is considered to be the main cause of climate change and current heat waves unprecedented in many places taking life. Although CO2 is considered as the most constituent of greenhouse gases but other product of exhaust gas such as NOx and SOx are also important on human health due to acidic oxides forming Acid rains. A report published by New York Times on August 2, 2018 is a narrative about environmental effect of man made pollution on climate change and the Green House Gases (GHG) mainly Carbone dioxide. Almost 50000 vessels operate in international waters. About 80% of global trade by volume and some 70% by value are moved by sea. Marine transports fuel consumption is around 5 to maximum 10% of global demand (6.1% in 2012) amounting to 45 to 49.5% Racing against time: Residual Marine Fuel demand, which in general has a Sulphur content of average 3.5 m/m%; but due to less restriction in the past its contribution may Chaos caused by arguably be disproportionate to According to this report, “the world has warmed by one world Acid Rain pollution. degree Celsius since the industrial revolution. The Paris In nature the main source of bureaucrats and agreement- the nonbinding, unenforceable and already Sulphur production are Volcano and Sea Plankton. Human unheeded treaty signed on Earth Day in 2016- hoped to activity is also a contributor. restrict warming to two degree.” The report adds as per According to a fact finding current trend the odds, is 5% to succeed. But with president politicians under report by CONCAWE study tramp and his appointee at EPA policies in Washington this Volume.10 / Sep 2018 Volume.10 / Sep 2018 group, shipping contribution of is more doubtful. man made SOx is 10% globally, public pressure hence IMO as a responsible international body has taken measure to curb and reduce this By: Seyd Ali Farkhondeh contribution. Payam Darya Payam Darya

104 105 Report

Contrary to NOx reduction The challenge to IMO was some ambiguities as many and ranges from as much as which started worldwide on global availability of marine ship operators were doubtful 97% by weight in the lighter oils year 2000; SOx reduction in fuel with less than 0.5 m/m% and reckoned the date 2025 to to as little as 50% in the heavier Europe was first started under Sulphur. The announcement be more practical rendering oils and bitumen; it currently directive EC/32/1999 amended was criticized by many in the uncertainty preventing many provides about 30~35% of by EC/33/2005 but it did not industry notably by refinery owners making decision for world energy demands1. take effect since the receiving experts, which estimated at technological development. Crude oil from different ports in Europe could not least 5 years is needed for Delft et al as appointed by IMO geographical region have provide and offer such fuel to refineries to be able to produce asserted and convinced the different characteristics and visiting vessels, hence could such fuel. A new installation organization that there will be varies in density, however for not implement the directive. such as Coke Cracker Units is sufficient fuel globally available the purpose of this report the One alternative then was to use needed to remove Sulphur. of different type to industry on density of crude oil is assumed shore power while ships were As reported in 2016 by and after January 2020. Hence to be the average value of 850 at port, which was a pundit International Energy Agency January 2020 is now fixed to kg/m3 and it is lighter than discussion only. (IEA); it is estimated that be the date to implement 0.5 water. Depending on the origin MARPOL Annex VI regarding global production of residual m/m% cap globally except of crude oil it contains various Sulphur in marine fuel came into fuel will be around 6.85 million ECA areas which will remain impurities such as Sulphur, force on 2005 with a worldwide barrel per day (mb/d) about 1.1 as more stringent limit of 0.1 Vanadium, Sodium, etc. for limit of 4.5 m/m% according to million tonne/day (mt/d) by m/m%. instance North Sea oil better ISO 8217 (2005) with a global year 2021 exceeding by almost There are 2 methods namely known as Brent oil with density average fuel available of ~3.5 – 2 mb/d (300’000 t/d) against primary (pre-combustion) and of 831.9 kg/m3 has a Sulphur 4 %. Nevertheless IMO Special 4.9mb/d (760’000 t/d) demand. secondary (post combustion) to content of 0.36%, and Iran Emission Control Area (SECA) The demand for residual fuel in choose by ship operators when light’s density ranges to 854.5 – came into force after 2005 at shipping will be decreased to it comes to SOx control. With 857.1 kg/m3 with 1.4 – 1.5 % Baltics Sea to become the first 1.2 mb/d (186’000 t/d) 25% of primary method the ships have Sulphur content. Such figures area to reduce the use of low total global residue demand in to use fuel with Sulphur content or Iran heavy ranges 865 – 870 Sulphur HFO of Maximum of 2021 from 3.15 mb/d (490’000 of less than 0.5 m/m% while kg/m3 and 1.8 % respectively2. 1.5 m/m%; reducing to 0.1% t/d) 45% of total demands; by secondary method ships Since crude oil consist of a after year 2015. close to other sources estimated can burn fuel regardless of its mixture of hydrocarbons mostly IMO announced On 2016 that 49.5% of total world demand in Sulphur content to treat the alkanes, also known as paraffin, after January 1, 2020 outside year 2018. exhaust gas before released into which are hydrocarbons with the ECA areas consumption For light fuel the move is on the atmosphere by use of catalyst straight or branched chains shall be below 0.5 % limit and opposite. It is estimated that by and scrubbers. containing only carbon and carrying any fuel oil above this 2021, global demand for Diesel In primary method the fuels hydrogen thus the lighter oil limit is illegal unless vessel is fuel will be more than 30.4 mb/ available to ships are low has larger amount of hydrogen equipped with means to reduces day against 28.8mb/d refinery Sulphur HFO, a blend of High in comparison with heavier SOx at Exhaust outlet before output. Light fuel demand in Sulphur HFO with low Sulphur oil which contains higher released to Atmosphere. marine sector is to increase by lighter oil, with a cost of 150 $ amount of carbon. Although the Sulphur is considered essential 2.7 mb/d from 1.2 mb/d in 2018 extra per tonne; MGO double amount of sulphur is low but for life and has a cooling to 3.9 mb/d in in 2021. This is the price of HFO and LNG. crude oil with higher sulphur effect; and although the de- 7% increase from 3% to 10% of Crude oil is a flammable liquid is heavier, considering that Sulpherization process in share of total global demand by found in rock formations in the atomic number for sulphur, refineries requires extra Marine transportation. Earth consisting of a complex Volume.10 / Sep 2018 Volume.10 / Sep 2018 energy which expert estimate IMO 2020 implementation mixture of hydrocarbons of 1 Exxon Mobile; Economist, April to increase an additional 3% was subject to assessment on various molecular weights with 2005, page 17, table 6 carbon dioxide a major GHG! 2018, to make sure that fuel is general formula of CnH2n+2, 2 McGraw-Hill, Platts; petroleum But it looks its damage to Earth available globally otherwise plus other organic compounds. methodology and specifications guide, and its inhabitant outweighs its the implementation to be The proportion of hydrocarbons January 2005 benefits! postponed to 2025. This caused in the mixture is highly variable Payam Darya Payam Darya

106 107 Report

carbon and hydrogen are 32, Areas ports and inland waters designated to be equipped to with owned private port is the bunkering LNG bunkering 12 and 1 respectively. Sulphur only. However as per reports by produce LSHFO, but there are most attractive place for LNG operation in Rotterdam to has acidic nature and is not a Delft about 3500 vessels will be reports that the plan has been bunkering with a moderate cover North Europe including desirable element in refineries There are reports equipped with scrubber by year handicapped as the Chinese 7 million tonne per year Norway, Belgium and Baltics’. as well as being harmful from that Iran backed by 2020. This number is disputed partner has pulled out due to liquefaction plant. There are LNG bunkering currently amounts for 50000 tonne/day environmental perspective. Saudi Arabia, two by others reports to be too illegal US sanctions. reports that a conceptual plan Historically refineries are optimistic and other research has already been considered as per IEA agency. designed to refine crude oil in heavyweights in group such as Norwegian group LNG an alternative marine and discussed. Though the main Secondary method basically is distillation towers for valuable the industry have SEB estimate it to be about fuels obstacle is likely the sanctions the use of scrubbers to wash products which can loosely pleaded to IMO 2000 which is similar to Korean One alternative is to use LNG against Iran energy sector. away exhaust by Seawater, the classified such as Petroleum for extension, but Classification KR assumption. as a cleaner fuel. There are same way as it has done on gases (C2 – C4), Naphtha there seems to be Therefor it looks that the rest of some progresses and many One of the problems with LNG tanker vessels as deck seal. (C5-C12), gasoline /petrol 40000 vessels have to choose ship owners are intending to is that it requires conversion of The scrubbers units are an little chance for any (C6 – C10 mostly C8 Octane), primary solution by using order dual fuel diesel engines. engines at a cost and bunkering extra cost to owners as capital Kerosene and Jet fuel (C11 – success! low sulphur fuel and since Shell marine at a recent seminar availability worldwide. cost evaluated as today’s C15) Gas oil and Diesel oil the LSHFO is not so readily in Dubai announced they are There was reports that market price by KR to cost (C16 – C18) and lubricant base available the use of LSMGO is ordering two afro-max tankers officials gathered to discuss between 2 to 7 billion Korean (C19 – C20) and whatever is unavoidable. The cost of MGO with dual fuel. One problem the objectives of a €53.5m won (1.8 to 6.3 million USD) left is termed as residue, which affects extra operational cost. with LNG is the possibility Mediterranean LNG bunkering depending on the size. Some are as recognized by ISO 8217 Price of LSHFO is estimated of bunkering worldwide. project in Brussels last month. economists consider this a as RME, RMG Residue Marine to be extra 150 $/MT over According to a recent study by The ‘Poseidon Med II’ is the capital cost in comparison grades E and G. HSHFO by KR and SEB. The a Benelux marine university second phase of a EU-led LNG to bunker cost which can Since sulphur is chemically price of MGO and MDO are comparing two ports of Dubai in bunkering infrastructure project. easily be shared with cargo bonded in fuel oil its removal is almost double the price of HFO UAE and Sohar in Oman There The first phase developed a owners. Depending on size not a straight forwards process although is considerable but is a strong contest between strategy for the introduction of ships and cost of fuel by and according to refinery expert prices of up to 750 $/MT has UAE and Oman to be first to and promotion of LNG as a figures provided by KR to new installation such as “Cock already been experience in hay establish LNG bunkering in the marine fuel to reduce shipping cost return is as low as 45 Cracker Units” tower is needed days of before 2006 and there Middle East. Iran shoring entire emissions in the Mediterranean. days to 2 years. Nevertheless to remove sulphur. is no reasonable reason for northern part of Persian Gulf Under phase two of the project, there are more into it, as it There are reports that Iran industry not to stand the same and Gulf of Oman with large groups involved are aiming to said the devil is in details. backed by Saudi Arabia, two this time. From operational natural gas reservoir especially have finalized technical designs The maintenance and the heavyweights in the industry prospective the use of MGO for at South and North Pars gas- and plan approval for ‘LNG disposal of removed sulphur have pleaded to IMO for with current Engines may cause fields with ideal locations such capable’ retrofits and new build is one problem. Many ports extension, but there seems to be leakage at high pressure pumps as Salakh on southern shore of ships by 2020. Further, ports in Europe and USA do not little chance for any success! designed for more viscose Qeshm Island on north of Strait involved in the project are allow any discharge. Other According to a report by fuel (12 cSt to reduce to less of Hormuz, Sirik overlooking said to be working towards a problems especially for Clarkson out of 94200 current than 2 cSt and cause of diesel Strait of Hormuz situated on the regulatory framework for LNG existing vessels are also to be vessels with a tonnage of nocking phenomena unless the east and Jask at Gulf of Oman bunkering as well as developing considered may include extra 1925 million tonne operating engine is de-rated and RPM all three ports not far from Iran an LNG fuelled feeder ship. It weight because of scrubber unit worldwide some 40000 about at MCR is reduced, which can number 7 gas pipe line IGAT 7 is reported that officials from and piping system which may 41% may need to use Scrubber be translated in power loss also known as peace line as well the ports of Piraeus, Trieste, La require inclination experiment in order to comply with 2020 and speed reduction. There is as port of Chabahar a potential Spezia, Venice, Genoa, Koper, for leading vessel as most requirement if such fuel is a positive gain however small; hub for land-lock countries of Rijeka and Limassol were classification require the test if Volume.10 / Sep 2018 Volume.10 / Sep 2018 not available worldwide. This it may render longer life of central Asia. Salakh situated present at the discussions. light weight is changed by 2%. assumption may suggest that the certain parts. on south of Qeshem Islands is A recent delivery of a 6500 The size and weight of scrubbers rest of fleets one way or another According to an interview only 5 miles away from Strait cbm on June 5 this year (2018), may be as such for large vessels already adopted to use LSMGO published by Payam Darya, of Hormuz and few miles from South Korean shipbuilder “STX that these may be positioned or similar fuels perhaps because IRISL’s bimonthly publication Iran gas grid home to Qeshm Offshore and Shipbuilding” at is at ship poop deck. Installation plying in Emission control 3 refineries in Iran was Star Bunkering company Changwon Jinhae to join Shell of piping system in already Payam Darya Payam Darya

108 109 Report

designed ship and high capacity there would be extra burden on be practically equipped with install scrubbers. cost effective lead in the market two degrees, we will only have pumps and new opening for sea power producing auxiliaries to scrubber. Clarkson research While many shipping companies to reduced the environmental to negotiate the extinction of chest will probably affects the be considered. In discussion estimated some 40000 vessels will be happy to share the cost damage. world’s tropical reefs, sea-level vessel equipment number hence with some informed concerned have to use LS fuel, either MGO with customer by using other The global warming did not rise of several meters and the new winches and windlass person in Italy a cruise liner or LSHFO, a serious task. companies are happy to pass the take place overnight, but as abandonment of Persian Gulf.” and stability as well as speed in Orlando, USA has already The Norwegian study group cost to customers by using more mentioned in the beginning of Climate Scientists are branding and water flow along the hull. scrapped its ships scrubbers SEB in 2018, believes the return costly fuel, considering that this report it is a long process, 2nd and 3rd degree as long Change of stability calculation after 2 years for LS fuel due to cost depending upon size, and industry has already experience significantly since Industrial and short term disaster and 4th and plan approvals. For a maintenance and operational fuel consumption varies. It high fuel prices of up to 750 $/ revelation in the Netherland and degree warming as drought in small vessel of 25 to 30 tonne difficulties. These make owners is 4 to 5 years for handy max Mt of the heydays of 2004-2006 England. The global warming Europe and many part of the deadweight equipped with an to think twice before installing consuming 25 t/d. period. is started and caused by west world to be claimed by desert. engine consuming 25 tonne scrubbers. That is may be Reports from South Korea is Maersk group has already industrialization since industrial Iran is a signatory to Paris HFO at least one seawater reason for giant ship owner advocating the use of scrubbers; expressed its policy will be to revolution by heavy pollution agreement on climate change pump with capacity of 250 or Maersk has stated that they will “Scrubber installation is the comply by using LSHFO. Shell in earlier and deforestation in and (as reported) has pledged to 300 M3/H is required. Another follow to comply with LS Fuel strategy that real world shipping shipping officials attending a Europe and the bill is being reduce its GHG related pollution problem is the discharge pipes as their best option. companies are currently taking seminar this summer in Dubai paid by everyone as there is by 4 to 12 per cent; hence it due to highly corrosive nature According to records available the most.” Many Korean expressed that they are ordering no border when it comes to air seems that except United States of effluent the pipes are to by July 2018 some 750 ships Owners planning long-term 2 Afro-max tankers. NITC, pollution, and global warming. which has backed off from both be ultrasonic test every year; are equipped with Scrubbers an contracts with shippers to cover giant Iranian Tanker Company To ask for global action Paris agreement and JCPOA DNVGL recommend every increase of 300 compare to 419 the initial cost of scrubber last year announced that they as agreed in Paris requires the rest of world has an legal 6 months. The large opening by end of March of the same installation. Polaris Shipping are intending to order 10 duel convictions demonstrated then and moral obligation to support for sea chest and rush of huge year. plans to install scrubbers on fuel tankers. and to be bullied by ignorant in Iran on environmental peaceful mass of water perpendicular Exhaust Gas Cleaning System six vessels that are engaged Therefore there are few Washington and oil majors. developments in its Energy at the hull near propeller will Association on June 23, 2018 in long-term transportation alternatives with high initial According to the same NYT sectors such as Solar, Wind, influence the water line at based upon its member’s contracts with shipper POSCO. cost and it may looks it all report mentioned in the LNG and LSHFO production. propellers and as mentioned information, reports of 1561 Further POSCO, is planning depends on early momentum beginning: “if by some miracle will have some tangible effect scrubber unit manufactured or to install scrubbers on 20 raw to reach a threshold for a viable we are able to limit warming to on speed and propeller life. on order, but only 983 units materials lines from December The scrubbers are fitted on is delivered to existing and/ to the end of next year. Korea exhaust outlet before released or under construction vessels. Shipping, H-Line Shipping, and to atmosphere influencing the Total of 615 of existing vessel Pan Ocean participate as well. exhaust velocity. Most engine 463 vessels are equipped with Polaris Shipping is also makers require a minimum of open loop and 152 using hybrid planning to install scrubbers 6 m/second at exhaust outlet on (open/close loop). And 368 on 15 vessels for long-term top of funnel. Again for existing vessels under construction 220 transportation contracts with vessel this has been optimized are to use open loop, 148 to use Vale, a global iron ore supplier hence to add new equipment hybrid system. last year and the shipbuilder is with water mist on the way Use of scrubbers is mostly used Hyundai Heavy Industries. of exhaust gases, there will on Cruise/RO-RO/ROPAX Hyundai Merchant Marine is be some reduction in exhaust 28% (mainly plying within also contemplating two ways velocity. Discussing this matter ECA ports,) Bulk carrier 28%, to install scrubbers or build with one scrubber manufacture, Tankers 23%, Container carriers LNG carriers, while ordering it was understood that the 16% and 5% other types. 20 vessels. Volume.10 / Sep 2018 Volume.10 / Sep 2018 velocity would drop to 5 m/s, Delft group, IMO appointed has The shipping industry thinks some 17% reduction hence in an optimistic number of 3500 Hyundai Merchant Marine will most cases an extra fan may be vessels will be equipped by install scrubbers. Other large needed. Since the vessel power year 2020. But more realistic shipping companies, including calculation has been optimized by various reports confirms SK Shipping and Pan Ocean, not including new ancillaries 2000 maximum 2500 will are reportedly planning to Payam Darya Payam Darya

110 111 Inteview

Produced methanol of Kaveh Industrial Group will be definitely exported and it is not for domestic use. The process needs port and related services through which Kaveh has access to all the possibilities.

When did Kaveh start provided the platform of development. Secondly, the working? creating the largest methanol goal of producing utility was Kaveh Industrial Group plan of the world with the achievable in Deyr port. started working in the realm production capacity of 7000 At present, PetroKaveh has of glass industry 35 years ago. ton per annum in Deyr port. an area of 240 hectares in the Considering one of the required However, establishing the region of Dyer, of which 60 raw materials in producing plant occurred at the time hectares are used to produce glass, which is sodium carbonate the sanctions began and the methanol, and another 180 and the fact that it was limitedly activities had to be stopped. hectares are considered for the Commercial manager of PetroKaveh in an interview with PD: produced in the country, Kaveh After the implementation of expansion of plans. Co. inevitably imported its JCPOA and sanctions’ removal, compulsory substances from the required machineries had How much methanol will Russia and Turkey. Gradually, been imported and installed. the company produce and Iran to produce Kaveh Industrial Group found So, it is expected the plant to be export? the first sodium carbonate exploited in the coming months. Expected amount of export is production plant with a Although the Group is owned equal to the total capacity of production capacity of 200,000 by the private sector, it is the plant i.e. 7000 ton daily and 30% of the world’s thoroughly independent in term 2.300 million annually which is tons per year in Maragheh, and now it is unique in this field. of supplying equipment and soon be achieved. Following this, another plant utilities. Ethanol by 2020 with the production capacity Produced methanol of Kaveh Where does Iran rank in of one million ton will come Industrial Group will be methanol production? to operation in Fars, Firuzabad definitely exported and it is not Iran’s methanol capacity will nine months later. for domestic use. The process reach 10 million ton (13%) Considering Iran with ample resources of gas, industries such as petro-chemistry plays a needs port and related services by the end of 2019 as the pivotal role due to injecting a high amount of income. Presently, production of methanol In which process is the through which Kaveh has production in PetroKaveh and leads Iran to be ranked the first one in the Persian Gulf and will produce 30 percent of company’s activity in the access to all the possibilities. other petro-chemistries of the the world’s ethanol by 2020 through utilization of PetroKaveh in Deyr region. Jafar petrochemical sector? country begin. The mentioned Volume.10 / Sep 2018 Volume.10 / Sep 2018 Asgariyan, commercial manager of PetroKaveh company in an interview with Payam Darya Kaveh Industrial Group What is the reason behind amount of production will be called transportation issues “Achilles Heel” and said: the country needs 80 ships to carry decided to start working in choosing Deyr Port to extended to 20 million ton petrochemicals as all the complexes of Kaveh, Marjan and Bushehr come to operation. At private sector as the pioneer establish the company? per annum by 2020. In other the same time, less than 10 ships carry methonal products. Transcription of this interview is one in petrochemical industry. First, dimension of this space words, Iran will be responsible presented below: To achieve this, the company is appropriate for the future for producing 30 percent of the Payam Darya Payam Darya

112 113 Inteview

world’s methanol. would be effective in prospering side of the industry. It is Having access to significant the economy of Iran? supposed that all the produced Bulletin gas resources, Iran is capable For a country such as Iran which methanol of Kavel Co. are of producing methanol has ample of gas resources, to be exported and then the competitively. One of the utilization of industries as way of transporting becomes country’s rival in this section petrochemical is pivotal. This important. At the meantime, is the U.S, which exploit shale industry might be helpful in the shipping industry of carrying gas. However, this kind of economy. To produce methanol, chemicals is weak. Four production will be beneficiary gas is converted to liquid which domestic companies own if oil price reaches more than is then consumed in two parts about 10 ships to carry the $60. In line with this, Iran of the energy and chemicals. product but it can be said they enjoys high level of cheaper oil Considering the resources, we are old and out of work. At and then it has more competing could earn considerable revenue, present, petrochemical fleet of power to produce methanol in which will be consistent by the the country export one third the world. Moreover, methanol next 100 years. Other industries of the produced capacity of LNG; consumption is on the rise will be launched as well. This Zagros, Fanavaran and Kharg and it is in fact an original industry of course is a specific Petrochemical Companies. This substance. Besides, methanol one and achieving to the goal will increase by 2020 as other sub categories are increasing means the difficult production. petrochemical complexes such alternative bunker! and consequently a growth in In the case where we get the as Kaveh, Marjan and Bushehr demand will take place. chance to reach our goal, we exploit and then 80 ships are can change gas to an excellent needed. How do you evaluate Iran’s source of income along with During the sanction era, freight petrochemical industry? entrepreneurship. rate of petrochemicals reached Iran stands in the first place $112 per ton. Whatever the in the Persian Gulf region in Who are the major consumers cost of transporting decrease terms of methanol production. of methanol worldwide? and the amount of goods Given petrochemical industry’s Approximately, 60 percent of increase, profits gained from capacity to produce more goods methanol is consumed in China. the product will enhance. Given with high level of value added, Besides, South Korea, Japan, the high freight rates during increasing tonnage in Iran has Taiwan and India are other the sanctions, companies always been a priority while main consumer of this type of did not earn that much profit never an increase in value added gas. In line with this, shipping from selling methanol. The has not been taken into account. with the purpose of exporting most profit was obtained by Unfortunately, the industry is indispensible. Drawbacks countries include Saudi Arabia, somehow ignored this fact and of transporting petrochemical Oman and producers such as it concentrates on consumption products would loosen the Methanex corporation Trindad of the produced gas while plants around the country as which carry the products with producing goods with a higher Iran’s rivals including Arabia, lower freight rate. value added is a preference. the U.S. and others waiting for Regrettably, this is one of the Therefore, following the it to occur. primary issues in the realm of increase in tonnage of the petrochemical transportation. Volume.10 / Sep 2018 products is not the straight and What measures have been Now, many active appropriated step. taken to transport the petrochemicals carry their To what extent, investing in products? goods with indefinite ships. industries such as petrochemical Shipping is the main negative Payam Darya

114 News

about the slope of the installation learning curve, market…” according to Chief Operating Officer Eric and the efficacy of adapting a landside technology Fabrikant. Fabrikant says that Seacor looks closely to the maritime environment. For owners choosing at non-commoditized sectors of the market, and to build LNG fueled vessels, the most immediate described LNG bunker barges as “a nascent space.” LNG is the bridge to ‘Zero Emissions’ shipping question centers around availability of the fuel mong the oil majors, Shell has taken early and big itself. It is here that the conundrum of ‘chicken steps in LNG fuel supply. Rotterdam is the base and egg’ suggests that LNG fuel must be available for its 6,500 cbm bunker tanker Cardissa, which as a pre-condition for LNG propelled vessels to takes on LNG at the Gas Access to Europe (GATE) enter a particular trade lane. Or, instead, does terminal, which in turn takes delivery of LNG in the fuel supply respond to LNG capable vessels large quantities from oceangoing tankers that bring calling (or hoping to call) at certain ports? gas from the Mideast and Asia and then store it. A LNG fueling makes sense where trade routes second vessel will be working out of Rotterdam, and are fixed and known well in advance. Not placed on charter to Shell Western LNG BV. With surprisingly, the first steps have been taken in Wartsila supplied cargo handling systems and tanks, environmentally hyper-conscious regions. While the 3,000 cbm vessel that will be owned through many ports are studying LNG fueling, its actual French / Belgian consortium and then chartered availability is limited. The World Ports Climate by the oil major. Its smaller size will afford the Initiative of the International Association of Ports additional flexibility to bunker vessels operating on and Harbors (IAPH) notes that LNG bunkering Europe’s inland waterways. The barge is being built facilities are already available, or planned, at ports in Romania and will be outfitted in the Netherlands. in Scandinaviaand Northern Europe and some In the coming months, fueling will be conducted Asian ports. from a newly constructed 2,200 cbm LNG barge LNG bunkering barges are a movable link in the built at Conrad Shipyard. In late summer, TOTE fuel supply chain, solving the ‘chicken and egg’ Maritime’s fuel provider, JAX LNG, has received a dilemma as they can move to where the ships are. In Letter of Acceptance (LOA) from the USCG for the service now, a handful of these LNG bunker barges operation of its waterfront LNG facility (which will replenish their fuel inventory at a liquefaction include a small liquefaction plant) and the approval facility and then move to where the customers are. to conduct barge-to-ship LNG bunkering operations. Seacor Holdings, for example, has acknowledged According to TOTE, “Barge-to-ship LNG that LNG bunkering “…is starting to come into the bunkering is scheduled to commence in early 2018.”

The advent of industry wide tightening of allowable Location, Logistics & LNG sulfur emissions is getting nearer. Suddenly, with One uncertainty surrounding all choices is price the deadline now little more than one year away, the inputs to any business case for one choice over countdown clock will very soon be ticking much another. These are tied closely to questions of louder. fuel availability. When prices of low sulfur fuels Simply stated, the cap on allowable sulfur content reflect scarcity, capital investment in scrubbers in marine fuels, presently at 3.5 percent in many or in LNG propulsion (slightly more expensive geographical regions, will be reduced to 0.5 percent than conventional diesel engines) look more in January 2020. The 0.1 percent sulfur cap, already attractive, with shortened payback times and/ in effect since 2015 in coastal Emissions Control or increased incremental savings over time. Areas (ECAs) in Europe and North America, will The path towards January 2020 presents many remain. other uncertainties, including whether oil suppliers Volume.10 / Sep 2018 Volume.10 / Sep 2018 As carriers struggle with deciding which is the best can (a.) make low sulfur fuels available at strategic way forward to compliance, liquefied natural gas bunkering locations and more importantly (b.) – or LNG – has emerged as an attractive option, whether they can produce sufficient quantities because it is “…virtually sulfur-free…” as oil major of low sulfur distillate fuel in the aggregate. For Shell explained in their brochure, IMO 2020: What’s owners choosing to install scrubbers (after an investment analysis), there are many questions

next?, a document aimed at marine fuel customers. Payam Darya Payam Darya

116 117 News

DP World revenues up on volume growth Port of Hamburg H1 container volumes fall on fewer empties

Increased throughput and new businesses boost recent changes in trade policies and geopolitical The Port of Hamburg saw container throughput fall adjustment of the fairway on the Lower and Outer bottom line, but near-term trade outlook remains headwinds in some regions continuing to pose 2.7% to 4.3m teu in the first half of 2018, mainly Elbe, it is understandable that shipping companies uncertain. uncertainty to the container market. due to handling of fewer empty boxes. The port said should utilize slot capacities on mega-containerships DUBAI-based ports operator DP World has “However, the robust financial performance of the in a press release that 525,000 teu or 15.6% fewer calling at Hamburg primarily for loaded boxes. benefited from improved conditions in global trade first six months also leaves us well placed for 2018 empty containers were handled during the period, Unlike cargo bound for the local region and loaded during the first half of the year but has warned and we expect to see increased contributions from while throughput of loaded containers was almost boxes, transhipment cargo and empty containers that geopolitical headwinds and recent changes to our recent investments in the second half of the flat at 3.8m teu, sliding just 0.6%. are less tied to specific ports. We therefore hope trade policies continue to pose uncertainty for the year.” Meanwhile Port of Hamburg’s intermodal that planning permission will be granted before the container market. Adjusted earnings before interest, tax, depreciation connections are improving, with railborne container end of the year, and the fairway adjustment finally Revenues at the group were up 14.4% to $2.6bn and amortisation grew 7.9% and ebitda margin movements rising 5.4% to 1.2m teu. “In the 2018 implemented after a wait of 17 years.” during the first half, with strong volume growth for the half-year stood at 50.3%. Like-for-like first half, the previous year figures were beaten, and Almost 64% of the downturn in container throughput across its regions supported by new businesses adjusted ebitda grew 4.2% with a margin of 54.4%. even the 2016 record. Landside seaport-hinterland in the first half of 2018 is attributable to lower including Drydocks World, Dubai Maritime City The company blamed the consolidation of lower transport by rail therefore developed especially transhipment throughput, primarily on feeder and Cosmos Agencia Marítima. margin maritime services businesses for the fall in satisfactorily,” the port said. Overall rail’s share of services in the Baltic. Transhipment handling for On a like-for-like basis, revenue increased by 3%, the ebitda margin. the intermodal transport split rose 2.3 percentage the first six months totalled 1.6m teu, 4.4% less than driven by a 4.6% increase in total containerised Last month, DP World reported a 6% like-for-like points to 45.1%. in the previous year. “Transhipment performance, revenue. But the ongoing problems at Doraleh and increase in volumes across its portfolio for the first “A glance at the throughput trend for loaded and or its share of total container handling, may have startup costs in Santos ate into profits, which were six months of the year, despite a slowdown in the empty containers in the first six months shows that dropped in the first half by comparison with the the Port of Hamburg handled less transhipment previous year by 0.7 percentage points to 37.9%. Volume.10 / Sep 2018 Volume.10 / Sep 2018 down 7.9% at $629m. second quarter. Profit declined due to the deconsolidation of DP World handled 35.6m teu across its portfolio cargo and empty boxes. Its share of loaded At the same time, however, the Port of Hamburg Doraleh (Djibouti) and consolidation of DP World of terminals in the first half of 2018, with gross containers remained stable in a tough competitive consolidated its position as the hub for freight bound Santos (Brazil), which remains in ramp-up stage. container volumes growing by 4.8% year on year field, while Hamburg’s significance as Europe’s for the Hamburg Metropolitan Region or originating Chairman Sultan Ahmed Bin Sulayem said: “The on a reported basis and 6% on a like-for-like basis. leading rail port was underlined by distinct growth there. Local cargo’s share continues to develop near-term trade outlook remains uncertain with in railborne container transport,” said Axel Mattern, steadily,” commented Ingo Egloff, joint ceo of Port joint ceo of Port of Hamburg Marketing. of Hamburg Marketing. Payam Darya Payam Darya “Against the background of the still outstanding 118 119 News

World’s 1st LNG-Powered cruise ship sees the ReCAAP: light of day asian armed robbery incidents surge in July

AIDAnova, the world’s first cruise ship powered the 6,600-passenger vessel will visit the Hanseatic A total of seven incidents of armed robbery against were also no reports of abduction of crew in the with LNG, has left Meyer Werft’s building dock in City on the Elbe, after which she will head for Gran ships were reported in Asia in July 2018, Asian Sulu-Celebes Seas and no hijacking of ships for Papenburg, Germany. Canaria. piracy watchdog ReCAAP ISC informed. theft of oil cargo. It took almost two hours to float out AIDA Cruises’ Thanks to its four dual-fuel engines, AIDAnova During the month, seven actual incidents were The last actual incident reported to the ReCAAP newbuilding in the evening hours of August 21. can be operated both in port and at sea with the reported. All have been verified and reported to ISC occurred on board Super Shuttle Tug 1 in March The 180,000-ton vessel will now berth at Meyer currently most environmentally friendly and the ReCAAP ISC by ReCAAP Focal Points and 2017; and the last attempted incident occurred on Werft’s outfitting pier where its mast and funnel lowest-emission fossil fuel. Contact Point. board Kudos 1 in February 2018. As of July 31, cladding will be fitted. For this reason, AIDAnova tops Nature And There has been an increase in the number of 2018, nine crew are still held in captivity. In addition, further testing with LNG will be Biodiversity Conservation Union’s (NABU) 2018 incidents in July 2018 as only one incident was ReCAAP ISC informed that a total of 47 incidents, performed on the ship’s engines and acceptance cruise ship ranking as the ship does not use heavy reported in June 2018. comprising 36 actual incidents and 11 attempted Volume.10 / Sep 2018 Volume.10 / Sep 2018 procedures by the shipowners will also take place. fuel oil. Of the seven incidents, two occurred on board ships incidents, had been verified and reported from From December 2018, AIDAnova will begin its As explained, all the remaining 76 ships which while underway and five on board ships at anchor/ January to July 2018. Compared to the same maiden season with cruises around the Canary were checked, even eight out of nine new vessels berth. One was a CAT 2 incident and six were CAT period a year earlier, when a total of 49 incidents Islands. Before those cruises get underway, the new coming into the market this year, will continue to 4 incidents. comprising 42 actual and seven attempted incidents ship will come to Hamburg. On December 2, 2018, use HFO, according to the association. There were no reports of piracy incidents in the were reported, there was a 4% decrease in the

area during July 2018. The agency added that there number of incidents Payam Darya Payam Darya

120 121 News

Over 60% of newbuilds at Korean yards in first half include scrubbers

With the IMO’s 0.5% sulphur cap fast approaching, expanding to install the devices to their entire the Korean Register is registering a rising demand fleets. “If they had a lot of trouble in the operation for scrubbers on new tonnage because there are of scrubber systems, they would not extend the high risks associated with low-sulphur fuel oil. installation of scrubbers to the rest of their fleet,” Earlier adopters of scrubbers are expanding the Mr Kim said. “It looks likely that more shipowners installations onto their entire fleet, says KR senior will opt for scrubber technology to remove sulphur surveyor Hyun-Tae Kim SHIPOWNERS have from the fuel when it is burned as uncertainty increasingly opted for scrubbers to meet the 2020 remains about low-sulphur fuel oil availability sulphur regulations when ordering new tonnage, and potential operational complications.” Mr Kim according to the Korean Register. pointed out that there was no guarantee of being More than 60% of the newbuildings, or about 90 able to buy identical types of low-sulphur fuels at units, placed at South Korean shipyards for the different locations, which could lead to problems first half of this year included scrubbers. This when the fuels were blended. represented a sharp rise compared with a share of “There is not an international standard at the only 25% between 2016 and 2017, Hyun-Tae Kim, moment for low-sulphur fuel oil and although the senior surveyor for the Korean Register, told a International Maritime Organization has requested seminar in Singapore on Thursday. the International Organisation for Standardisation

Volume.10 / Sep 2018 Most of the scrubbers were fitted on bigger vessels, to develop this, it will not be ready until 2022.” such as very large crude carriers, but installations Even if ships are allowed to use a non-compliant on middle range tankers have also increased, he bunker when qualified fuels are not available at a noted. Yard capacity remained a challenge, as the port, the de-bunkering operation they will have to early adopters — such as the cruise lines — who conduct when reverting back to compliance would started to use scrubbers as early as 2009, are now also create issues, Mr Kim said. Payam Darya

122