Gulf Countries Shift Oil Routes to Bypass Strait of Hormuz

Before the conflict in Iran, approximately 15 million barrels of oil from the Persian Gulf were transported daily through the Strait of Hormuz. This route is under pressure as Iran’s control over the strait continues, driving up oil prices. Countries around the Gulf are investing billions to build pipelines that will redirect oil to ports on the Red Sea, the Gulf of Oman, and the Mediterranean.

At least seven pipeline projects are either under construction, in planning stages, or being discussed. Gulf oil producers are keen to reduce reliance on the Strait of Hormuz, a critical transit point near Iran. However, alternative routes carry their own risks. Yemen’s Houthi rebels, backed by Iran, recently attacked two Saudi oil tankers in the Red Sea, which serves as an alternative to the Hormuz route.

Some of these alternatives involve longer and more costly paths. Yet, oil producers recognize the necessity to diversify routes. Victoria Grabenwöger, from data firm Kpler, emphasizes that heavy dependence on Hormuz is not a sustainable long-term strategy. The Red Sea and Gulf of Oman have emerged as vital alternatives.

The effective closure of the Strait of Hormuz could have severely impacted the global economy if not for a pipeline built by Saudi Arabia in the 1980s during the Iran-Iraq war. The East-West pipeline transports oil across Saudi Arabia from Abqaiq to Yanbu on the Red Sea coast.

The United Arab Emirates is increasing oil shipments to the port of Fujairah, adjacent to the Gulf of Oman, a mere 145 kilometers south of Hormuz. The East-West pipeline and Fujairah pipeline had spare capacities between 3.5 million to 5.5 million barrels daily before the war, and are now near capacity, according to the U.S. Energy Information Administration. More oil is expected to flow through the UAE port by next year.

Abu Dhabi’s state-owned oil company is advancing a $3 billion, 300-kilometer pipeline to Fujairah. This project seeks to amplify oil supply to Fujairah by over 1.2 million barrels daily. The pipeline, initially started before the war, is reportedly halfway completed. Finalization is targeted for early 2027, although Kpler projects mid-2027 as more realistic due to necessary port expansions.

Iraq is also developing plans to divert oil exports from southern fields around Basra to alternatives. Dependent on Hormuz, Iraq has reduced production. The Iraqi government relies heavily on oil sales for revenue. They are engaging with U.S. companies on pipeline projects from Basra’s terminal to Turkey’s port of Ceyhan on the Mediterranean Sea, also extending a branch to Baniyas in Syria. This pipeline could handle 2 million barrels daily to Baniyas.

Discussions with Jordan concerning a pipeline from Basra to Aqaba are ongoing, aiming at exporting through the Red Sea or the Suez Canal to global markets. Goldman Sachs analysts predict bypass projects could reroute 3.8 million barrels daily by the end of next year and 7.3 million daily by 2028. This suggests 60% of the Gulf’s prewar oil exports could bypass Hormuz.

However, pipelines to the Mediterranean redirect oil away from Asian buyers, necessitating a longer journey via Africa’s southern tip. Additionally, supplies via Saudi Arabia to the Red Sea may encounter threats from Houthi rebels, as recent attacks demonstrate. These supplies might opt for the Suez Canal, which cannot accommodate the largest oil tankers.

Pipelines are not immune from attacks either, evidenced by the Houthi strike on Saudi Arabia’s East-West pipeline in 2019. Furthermore, pipelines do not address disruptions in liquefied natural gas (LNG) shipments, many originating from Qatar and destined for Asia, previously moving through the strait.

Associated Press writer Qassim Abdul-Zahra contributed to this report.