Persian Gulf Oil Supply Rerouted Amid Strait of Hormuz Tensions

Prior to the conflict in Iran, approximately 15 million barrels of oil from the Persian Gulf were transported daily via the Strait of Hormuz. As tensions persist and oil prices rise, Gulf countries are investing billions to construct pipelines that redirect supplies to ports on the Red Sea, Gulf of Oman, and the Mediterranean.

According to government officials, oil companies, and analysts, at least seven significant pipeline projects are underway or being considered. This development signals Gulf oil producers’ intent to reduce their dependence on a route close to Iran’s coast.

Nonetheless, alternative routes face risks of disruption. For instance, Iran-backed Houthi rebels recently claimed attacks on two Saudi oil tankers in the Red Sea, affecting Saudi oil exports. Longer, more costly paths to market are unavoidable, yet producers recognize the strategic shift away from exclusive reliance on the Strait of Hormuz.

Victoria Grabenwöger, a senior research analyst at data firm Kpler, emphasizes the importance of exploring alternatives like the Red Sea and Gulf of Oman.

The Saudi East-West pipeline, built in the 1980s, has mitigated potential shocks to the global economy by transporting oil from Abqaiq to Yanbu on the Red Sea coast.

Meanwhile, the United Arab Emirates is enhancing its port capacity at Fujairah, situated around 145 kilometers south of Hormuz. Prior to the conflict, combined pipeline capacities were between 3.5 million and 5.5 million barrels daily. Now, they operate near maximum capacity.

The state-owned oil company of Abu Dhabi is hastening the construction of a $3 billion, 300-kilometer pipeline to Fujairah. This infrastructure aims to boost supply by more than 1.2 million barrels daily, potentially completing around mid-2027.

Iraq is exploring alternative export routes due to its dependency on the Strait of Hormuz. The Iraqi government is working with U.S. firms on pipelines stretching from Basra to Turkey’s Ceyhan port and Syria’s Baniyas port. Discussions with Jordan also explore a Basra-to-Aqaba pipeline, facilitating oil exports through the Red Sea or Suez Canal.

Goldman Sachs analysts project that new pipelines circumventing Hormuz may transport 3.8 million oil barrels daily by next year and 7.3 million by 2028. This would enable roughly 60% of Gulf exports, totaling 23 million barrels daily, to bypass Hormuz. However, longer routes may complicate Asian supply chains.

Pipelines also face threats from conflicts like the Houthi incidents at the Bab el-Mandeb Strait and drone strikes on the Saudi East-West pipeline in 2019. Additionally, pipelines do not alleviate disruptions in liquefied natural gas (LNG) supply once heavily reliant on the Strait of Hormuz.

While oil rerouting is underway, challenges persist to fully stabilize Gulf oil supply chains.