Mideast oil producers plan to bypass Strait of Hormuz

Frankfurt, July 25:

Before the war in Iran, roughly 15 million barrels of Persian Gulf oil were shipped each day through the Strait of Hormuz. Within a few years, much of that oil could bypass the strait.

As Iran’s chokehold over the strait drags on, oil prices surge, so countries across the Gulf are planning to spend billions of dollars to build pipelines enabling them to redirect more supplies to ports along the Red Sea, Suez Canal and Gulf of Oman.

At least seven major pipeline projects are under construction, in the planning stage or being discussed as possibilities, according to government officials, oil companies and analysts.
Even alternatives to Hormuz can become vulnerable, as Iran-backed Houthi rebels in Yemen have shown this week with a stated blockade on Saudi-linked vessels attempting to transit the Red Sea. But the war has been a wake-up call for Gulf oil producers, who are determined to become less dependent on a transit point that hugs Iran’s coast.

Some alternative routes will take longer be more expensive. Regardless, relying so heavily on the Strait of Hormuz “is no longer a prudent long-term strategy,” said Victoria Grabenwoger, senior researcher at the data and analysis firm Kpler.

The effective shutdown of the Strait of Hormuz would have been an even greater shock to the world economy were it not for a pipeline Saudi Arabia built in the 1980s amid fears that Tehran would disrupt shipping through the strait during the Iran-Iraq war.

The Saudis’ East-West pipeline carries oil across the desert nation from a processing facility in Abqaiq to the city of Yanbu on the Red Sea coast. Once there, it is loaded onto tankers that head either south to the Arabian Sea or north to the Suez Canal.

The state-owned oil company of Abu Dhabi, one of the UAE’s seven emirates, is accelerating construction of a USD 3 billion, 300-kilometre pipeline to Fujairah. That pipeline, which will run parallel to an existing one, aims to increase oil supplied to Fujairah by more than 1.2 million barrels a day.

The project, which started before the war, is now reportedly about half-way completed, according to Kpler. The pipeline is intended to be completed by early 2027, but Kpler says mid-2027 is more likely given the need to expand the port at Fujairah.

In Iraq, officials are ramping up plans to develop alternative export routes for southern oil fields around Basra. Iraq is so dependent on the Strait of Hormuz that it has had to scale back production.

The Iraqi government, which gets some 90 per cent of its revenues from oil sales, has been pursuing pipeline projects with US companies. One would take supplies from an oil terminal in Basra, through which more than 3 million barrels were exported daily before the war, to the port of Ceyhan in Turkiye, along the Mediterranean Sea. That pipeline would also have a branch extending to the Mediterranean port of Baniyas in Syria.

Taken together, the new projects to bypass Hormuz could carry 3.8 million barrels of oil a day by the end of next year, and 7.3 million barrels per day by the end of 2028, according to analysts at the investment bank Goldman Sachs. They say some 60 per cent of the Gulf’s total prewar exports of 23 million barrels a day would be insulated from a Hormuz cutoff.

Pipelines from the Persian Gulf to the Mediterranean Sea send oil in the wrong direction to help Asian countries that relied on exports through Hormuz. Getting the oil to its final destination will require a much longer trip around the southern tip of Africa.

Any additional supplies piped from Saudi Arabia to the Red Sea will also be vulnerable to attacks by Houthi rebels in Yemen; the rebels have successfully disrupted shipping before at the Bab el-Mandeb Strait, which connects the Red Sea to the Gulf of Aden.