Gulf oil producers are stepping up billions of dollars’ worth of pipeline projects to redirect crude away from the Strait of Hormuz, as Iran’s continued chokehold over the vital waterway drives up prices and forces a rethink of the region’s energy infrastructure.
Before the war in Iran began, roughly 15 million barrels of Persian Gulf oil were shipped through the strait each day; within a few years, much of that volume could instead flow through pipelines to ports on the Red Sea and the Gulf of Oman, says AP.
At least seven major pipeline schemes are either under construction, in the planning stages, or being discussed as possibilities, according to government officials, oil companies and industry analysts. The conflict has served as a wake-up call for Gulf producers determined to reduce their reliance on a transit route that runs along Iran’s coastline.
Alternative paths are not without risk, however: Yemen’s Iran-backed Houthi rebels said early on Thursday that they had struck two Saudi oil tankers in the Red Sea, one of the principal alternative routes for Saudi exports.
Some of the rerouted oil will face longer and costlier journeys to market, but producers have concluded that continuing to depend so heavily on Hormuz “is no longer a prudent long-term strategy”, according to Victoria Grabenwöger, senior research analyst at the data firm Kpler.
A full shutdown of the Strait of Hormuz would have dealt an even heavier blow to the global economy had Saudi Arabia not built a pipeline in the 1980s, at a time when Tehran was feared to be preparing to disrupt shipping through the strait during the Iran-Iraq war.
That pipeline, known as the East-West line, carries crude across the Saudi desert from a processing plant at Abqaiq to the Red Sea city of Yanbu, where it is loaded onto tankers bound either south for the Arabian Sea or north towards the Suez Canal.
The United Arab Emirates, meanwhile, has been directing greater volumes of oil to the port of Fujairah, on the Gulf of Oman, roughly 145 kilometres (90 miles) south of Hormuz.
Together, the two pipelines held spare capacity of between 3.5 million and 5.5 million barrels a day before the conflict began, according to the US Energy Information Administration. Both are now operating close to full capacity.
Abu Dhabi’s state oil company is speeding up work on a $3 billion, 300-kilometre (200-mile) pipeline to Fujairah, running alongside an existing line, which is designed to boost the emirate’s oil supply to the port by more than 1.2 million barrels a day.
The project, which was already under way before the war broke out, is now roughly halfway complete, according to Kpler. Completion is officially scheduled for early 2027, though Kpler believes mid-2027 is a more realistic target given the scale of the port expansion required at Fujairah.
Grabenwöger said the ambitious timetable “has only become feasible against the backdrop of the Strait of Hormuz blockade”.
In Iraq, officials are accelerating efforts to develop alternative export routes for oilfields in the south of the country around Basra. Iraq’s dependence on Hormuz has become so acute that it has been forced to cut back production.
Baghdad, which draws around 90% of its revenues from oil exports, has been working with US companies on pipeline proposals.
One scheme would carry supplies from a terminal at Basra — which exported more than 3 million barrels a day before the war — to the Turkish Mediterranean port of Ceyhan, with a branch extending to the Syrian port of Baniyas.
Up to 2 million barrels a day could eventually flow to Baniyas, which the US State Department has described as “a critical energy corridor”.
Iraqi officials have also been in talks with Jordan over long-discussed plans for a pipeline linking Basra to the port of Aqaba, from where oil could be shipped via the Red Sea or the Suez Canal to markets in Asia and beyond.
Taken together, the new pipeline projects could carry an extra 3.8 million barrels of oil a day by the end of next year, rising to 7.3 million barrels a day by the end of 2028, according to analysts at the investment bank Goldman Sachs.
That would allow around 60% of the Gulf’s total prewar daily exports of 23 million barrels to bypass Hormuz altogether if required, the bank’s analysts said.
Pipelines running from the Gulf to the Mediterranean send oil in the opposite direction to Asian markets that had relied on exports through Hormuz, meaning a considerably longer voyage around the southern tip of Africa.
Additional Saudi oil piped to the Red Sea also remains exposed to Houthi attacks, as Thursday’s strikes demonstrated; the rebels have previously disrupted shipping at the Bab el-Mandeb Strait, which links the Red Sea to the Gulf of Aden.
That oil could alternatively be routed through the Suez Canal towards the Mediterranean, though the canal cannot accommodate the industry’s largest tankers, some of which carry up to 2 million barrels and represent the most cost-effective means of transporting oil over long distances.
Pipelines themselves are also far from invulnerable: the Saudi East-West line was forced offline by a Houthi drone strike in May 2019. Oil pipelines, moreover, do nothing to ease disruption to shipments of liquefied natural gas (LNG).
Around one-fifth of the world’s LNG supply, much of it exported from Qatar to Asian buyers, passed through the strait before the war began.
