Before the conflict in Iran, the Strait of Hormuz facilitated the daily shipment of approximately 15 million barrels of oil from the Persian Gulf. Today, much of this oil may soon bypass the strait. Amid rising oil prices, driven by Iran’s control over Hormuz, Gulf states are investing in pipelines to redirect supplies to ports on the Red Sea, Gulf of Oman, and the Mediterranean Sea.
Currently, at least seven significant pipeline initiatives are either being constructed or considered, according to government officials, oil companies, and analysts. These developments were spurred by the war, prompting Gulf producers to lessen reliance on Iran’s coastal transit point. However, the alternatives also face risks. Recently, the Houthis, supported by Iran, claimed an assault on two Saudi tankers in the Red Sea, a prime alternative route for Saudi exports.
Some new routes extend shipping paths, potentially increasing costs. Despite this, producers regard reliance on the Strait of Hormuz as an imprudent long-term strategy, states Victoria Grabenwöger, a senior research analyst at Kpler. The Red Sea and Gulf of Oman are now seen as vital alternatives.
The potential closure of Hormuz could have had a more severe impact if not for Saudi Arabia’s East-West pipeline, established in the 1980s amidst the Iran-Iraq conflict. This pipeline transports oil across Saudi Arabia, from Abqaiq to Yanbu on the Red Sea, where it is then loaded onto tankers heading either south to the Arabian Sea or north towards the Suez Canal.
Pipeline Expansions and Alternatives
The UAE has increasingly relied on the port of Fujairah, situated around 90 miles south of Hormuz and adjacent to the Gulf of Oman. Before the war, the UAE pipelines offered a spare capacity between 3.5 million and 5.5 million barrels per day, now nearing full usage.
To enhance capabilities, the state-owned Abu Dhabi oil company is expediting the construction of a $3 billion, 200-mile pipeline to Fujairah. Expected to increase supply by over 1.2 million barrels daily, the pipeline project is currently midway through completion, aiming for finalization by early 2027. The completion timeline, however, might extend to mid-2027 due to necessary port expansion.
Iraq is also planning routes to diversify oil exports from the southern Basra region. Given its dependence on Hormuz, Iraq has reduced production. The government, earning about 90% of revenue from oil, collaborates with U.S. firms to establish pipelines to Turkey and Syria. A pipeline to Turkey’s Ceyhan port, extending to Syria’s Baniyas, could transport two million barrels daily, considered crucial by the U.S. State Department.
Additional projects under discussion include a pipeline from Basra to Aqaba in Jordan, allowing exports via the Red Sea or Suez Canal to Asia and beyond.
Projected Capacity and Risks
Analysts at Goldman Sachs anticipate new projects could bypass Hormuz with an additional 3.8 million barrels daily by next year and 7.3 million by 2028. Thus, about 60% of the Gulf’s prewar exports could avoid Hormuz if necessary. However, some routes, including those from the Persian Gulf to the Mediterranean, require longer paths for Asian markets, possibly routing oil around Africa’s southern tip.
Moreover, new pipelines face risks of attacks, as illustrated by previous disruptions at the Bab el-Mandeb Strait by Houthi rebels. While some oil might redirect to the Suez Canal for the Mediterranean, the canal cannot accommodate the largest tankers, often used for cost-effective long-distance transport.
The East-West pipeline was previously shut down due to a Houthi drone strike in 2019. In addition, oil pipelines do not address liquefied natural gas (LNG) supply disruptions. One-fifth of the world’s LNG, much hailing from Qatar for Asian clients, transited through Hormuz before the conflict.
Corrections have been made to clarify the agency mentioned is the U.S. Energy Information Administration.
Report composed with input from Qassim Abdul-Zahra, Associated Press writer, Baghdad.
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