How Gulf oil giants are racing to bypass Hormuz after Iran war shock

With Iran demonstrating its ability to weaponise the Strait of Hormuz, major oil producers in the Gulf, led by Saudi Arabia and the United Arab Emirates (UAE) are scrambling to build new pipeline networks and export terminals and expand existing ones in an attempt to bypass the narrow choke point. Such projects, however, will take a prodigious amount of time and resources to build.

Prior to the start of the Iran war, the Strait of Hormuz was one of the world's most important waterways, accounting for around 25% of the world’s oil trade, with around 140 tankers ferrying 20 million barrels of oil per day. Oil and gas shipments from Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait and Iraq used to transit via the Persian Gulf.

This vital energy artery was effectively shut down by Tehran after the outbreak of the war with the US and Israel on February 28. This not only shut down one of the Gulf's main revenue streams, but also caused what the Energy Agency (IEA) described as the world's largest ever energy crisis. Prices of oil and gas shot up as countries across the world found themselves grappling with a shortage in energy supplies.

The Gulf countries, which depend on petroleum exports as the main driver of their economies, are losing billions of dollars.

According to a report by the Turkey-based wire service, Anadolu Agency, the economic impact of the Middle East conflict could exceed $50 billion as Gulf countries face major energy revenue losses due to rising tensions and the closure of the Strait of Hormuz.

This is now making Gulf countries push to upgrade existing pipelines and build new ones to mitigate the Gulf's enduring exposure to disruptions in the Strait. Yet these projects come with steep price tags, intricate political negotiations, and timelines stretching several years.

SAUDI ARABIA'S EAST-WEST PIPELINE BUILT DURING TANKER WAR

The war in Iran has spotlighted the strategic importance of Saudi Arabia’s 1,200-km East-West pipeline. The pipeline was built in the 1980s in the midst of the "tanker war" between Iran and Iraq, which saw both sides target oil tankers transiting the Strait.

This pipeline now serves as a critical lifeline, delivering around 7 million barrels of oil per day to the Red Sea port of Yanbu, entirely bypassing Hormuz.

"In hindsight, the East-West pipeline looks like a genius masterstroke," one senior Gulf energy executive told the UK-based news outlet, The Financial Times (FT). Amin Nasser, chief executive of Saudi Aramco, told the FT that the pipeline is "the main route that we are capitalising on right now".

According to the FT report, Saudi Arabia is now exploring ways to route more of its 10.2 million barrels of daily production via pipelines rather than the Strait of Hormuz. Options under consideration include further expanding the East-West pipeline's capacity or developing entirely new routes to the Red Sea coast, including potential additional export terminals linked to projects like Neom.

PLANS TO REVIVE REGIONAL TRADE CORRIDORS, INCLUDING INDIA CORRIDOR

Gulf states are considering reviving planned but dormant trade corridors in order to secure an alternative to the Strait of Hormuz, which is seeing an Iranian blockade and US military action.

One option is the revival of US-led plans for an ambitious trade corridor that would run from India through the Gulf and then to Europe, called IMEC, as one Gulf official told FT, although part of this project originally included a politically tricky pipeline that ran to the Israeli port of Haifa.

Yossi Abu, the chief executive of Israeli company NewMed Energy, expressed confidence that pipelines to the Mediterranean Sea would be built via IMEC whether they terminated at Israeli or Egyptian ports.

"People need to control their own destinies, with their friends," he told the FT. "You need oil pipelines, railway connectivity, throughout the region, onshore, without giving others bottlenecks to choke us."

NEW PIPELINES WILL BE EXPENSIVE AND RISKY TO BUILD

Christopher Bush, CEO of Cat Group, which helped construct Saudi Arabia’s East-West pipeline, reported sustained interest in fresh projects. "We have had enquiries about various different pipelines," he told the FT. "I have multiple different presentations on my desk."

But building new pipelines and terminals and associated infrastructure can be prohibitively expensive.

Replicating Saudi Arabia's East-West pipeline today, which saw engineers blast through the country's Hijaz mountain range, would cost at least $5 billion, Bush told the FT. More ambitious multi-country routes from Iraq via Jordan, Syria, or Turkey could run between $15 billion and $20 billion

Speaking to Reuters, Gabriel Collins, of Rice University’s Baker Institute for Public Policy, estimated that a pipeline project to entirely bypass chokepoints the Strait of Hormuz and the Bab el Mandeb Strait would need to stretch from Southern Iraq and Kuwait before terminating in Omani ports.

The Houthis, part of Iran's Axis or Resistance, control the Bab el Mandeb Strait.

According to Collins, building, maintaining and defending such a project could cost up to $55 million and take at least seven years to complete.

Security remains a formidable hurdle. The FT report noted that Iraq's terrain harbours significant unexploded ordnance and lingering militant threats, while routes to Omani ports must navigate harsh desert and mountainous landscapes. Recent drone attacks temporarily closed Oman’s key port of Salalah, demonstrating that even alternative maritime outlets are not entirely immune to Iranian threats.

In the shorter term, the FT report noted that the most practical step likely involves expanding existing bypasses, including Saudi Arabia's East-West line and Abu Dhabi's Habshan–Fujairah oil pipeline to Fujairah on the Gulf of Oman.

The final decision on whether to invest in alternative infrastructure to bypass the Strait hinges on the long-term outlook for Hormuz.

But for Gulf countries hitherto dependent on the Strait of Hormuz to export their black gold to the rest of the world, the writing is on the wall. Tehran's actions have already put them in dire straits by choking off their energy artery once. Either get an alternative, or potentially pay the toll to Tehran and remain dependent on Iran's goodwill going forward to keep Hormuz open.

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