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Abu Dhabi: Gulf oil producers on Wednesday decided to drop a project to build an oil pipeline bypassing the strategically vulnerable Strait of Hormuz between Iran and Oman on the grounds it was not feasible.
Nearly 20 per cent of the world's total oil supply flows through the sea channel at the mouth of the Gulf. The flow is around 16-17 million barrels of oil per day, making it the world's most important shipping chokepoint.
Oil exporting Gulf states have been studying contingency plans for any shipping blockage through both the Gulf and the Red Sea.
"It was agreed to accept the results of a study about the project to build a pipeline to transport Gulf oil in case the Strait of Hormuz is closed, whereby the study recommended that this project is not feasible," said a statement issued at a GCC oil ministers' meeting.
The international military presence in the region and the political ramifications of the pipeline may have contributed to the ministers dropping the project, said Valerie Marcel, Principal Energy Researcher at London-based thinktank Chatham House.
"If there was a disruption, say for example if the Iranians were to carry out their semi-veiled threat of disrupting supplies, the effect could only last a few hours or a few days," she said.
"The military naval presence in the region would interfere so quickly it's very unlikely that there would be a significant, sustained disruptions in the Straits of Hormuz."
The US Central Command's (Centcom) key mission in the Gulf is to ensure the free flow of oil and energy supplies.
The route of any pipeline would be politically charged as it would change the balance of power in the region.
Relationships between Gulf states may not be strong enough to guarantee transit lines, and any planned pipeline route may revive border disputes between countries, Marcel said.
"Such an export route would depend on very good relations between those states, that they trust each other to respect the transit rules and agreements. I don't know that those states would be able to give those kinds of guarantees."
The first cross-border gas pipeline in the region, the $3.5 billion Dolphin Energy project pipeline between the UAE and Saudi Arabia, was dragged into a territorial dispute between the two countries in July.
Saudi Arabia and its Gulf neighbours assessed the impact of Opec's recently agreed 1.2 million barrels per day output cut and whether a further reduction will be needed before year end.
Officials dismissed a US government agency report Opec would push through barely 60 per cent of the planned supply cuts.
"All of Opec is committed," UAE Energy Minister Mohammad bin Dha'en Al Hamili said.
"Saudi Arabia is implementing its 380,000 barrels per day cut in full," a Saudi source said. Investors are beginning to waver in their initial belief that Opec's October 20 agreement is not worth the paper it is written on.
US crude was up 81 cents to $59.74 a barrel by 1611 GMT. London Brent crude was up 85 cents at $59.33.
Saudi Arabia and other Gulf Opec members have said they see scope for further supply cuts when Opec next meets on December 14, pointing to high fuel stocks in top consumer the United States as evidence the market remains oversupplied.
Gulf oil ministers have carefully avoided mentioning a target price for their oil, but Opec delegates say Saudi Arabia prefers a level above $50 for Opec's basket of crudes. That would equate to about $55 for US crude.
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