Everyone should keep an eye on this Persian Gulf island
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Everyone should keep an eye on this Persian Gulf island originally appeared on TheStreet.
Kharg Island is a small island in the Persian Gulf.
It lies 16 miles off the northwest coast of Iran. It's 451 miles from Tehran, Iran's capital — roughly the distance from Detroit to New York City.
It is just five miles long, about 40% the size of New York's Manhattan Island. And 125 from Iran's border with Iraq.
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It is also unique in the Persian Gulf. The island's limestone foundation allows it the luxury of fresh water reserves.
Most importantly it also is the key port that exports Iranian crude oil. About 90% of Iran's oil exports flow through Kharg's terminal complex. And about a third of those exports go to China.
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Kharg could prove to be one of two key strategic places if the Israeli-Iran War (let's call it that for now) spins out of control.
The other is the Strait of Hormuz, 21 miles wide at its narrowest, same as the English Channel.
About a third of the world's liquified natural gas and 25% of its crude oil must pass through the strait to pass from the 615-mile Persian Gulf to reach buyers in Europe, Asia and elsewhere.
Giant oil tankers with oil and natural gas from Iran, Iraq, Saudi Arabia, the United Arab Oman and Abu Dhabi, Qatar and Bahrain flow though the strait
Iran is the northern side of the strait, Oman on the southern. For years, whenever there's a conflict involving Iran, there are fears the country might block the strait.
Two places critical to the global economy
The importance of Kharg and the Strait of Hormuz helps explain why crude oil prices shot up as much as 14% late Thursday on the very first reports of Israel's attack on Iranian military and nuclear facilities.
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Ultimately, West Texas Intermediate, the benchmark U.S. crude closed Friday up 7% to $71.29, and Brent, the benchmark global crude, was up the same amount to $74.23.
If the worst of the conflict scenarios come to pass — Kharg's terminals and the strait are shut down, all bets are off on oil prices and, by extension, natural gas and gasoline prices.
Kharg's terminal were blown up during the Iraq-Iran War of 1980-1988. And the shooting between Israel and Iran (via drones and missiles) continued off and on Saturday and into Sunday.
In the event of a Kharg shutdown and strait closed, Reuters reported, some analysts were suggesting crude prices could top $120 a barrel or higher, which would send gasoline prices much higher, maybe up to the top U.S. average price of $5.22 a gallon in May 2022.