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Alternatives to the Strait of Hormuz

Abstract:
In this paper we study the cost of adding additional capacity to transport oil from Saudi Arabia and Kuwait to the Red Sea. If this capacity is obtained by adding power to the existing pipelines, the cost would increase by approximately 14 cents per barrel, but would require large capital expenditures. If this capacity is obtained by using Drag Reduction Agents, the cost would increase by 25 to 65 cents per barrel with minor capital expenditures. Since Arabian oil is inframarginal, these increased costs should have no impact on the supply of oil.

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Energy Specializations: Petroleum – Pipelines; Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation; Energy Security and Geopolitics – Geopolitics of Energy

JEL Codes:
N5 -
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q48 - Energy: Government Policy

Keywords: Oil Supply, Strait of Hormuz, oil pipelines, drag reduction agents (DRA)

DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No2-9


Published in Volume19, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.