Saudi Arabia and the UAE have pipelines designed to bypass the Strait of Hormuz, but their limited capacity leaves global oil markets exposed as tanker traffic through the waterway stalls during the Iran war.
Ships are avoiding sailing through the narrow water channel amid the regional conflict and threats from the Iranian army. Vessel traffic has almost come to a halt along the strait.
Two pipelines can provide an alternate route to supplies, but the supply capacity is very limited.
Saudi Arabia, Opec’s largest producer, has the East-West crude pipeline connecting Abqaiq in the East to Yanbu on the Red Sea, with a total capacity of 5 million barrels per day of crude oil. The UAE has a crude oil pipeline running from Habshan in Abu Dhabi to Fujairah, with a capacity of nearly 1.8 million bpd.
There is also a natural gas liquids pipeline running parallel to the East-West Pipeline in Saudi Arabia, with a capacity of 300,000 barrels per day, when fully utilised, according to the International Energy Agency's data.
“The volume flow through the Strait of Hormuz is irreplaceable in the global market in the short term, so for now effects are being felt everywhere”, Janiv Shah, vice president of commodity markets at Rystad Energy, told The National.
Building new pipelines to bypass the Strait is an option, but it involves a lot of investment and requires time, with shipment through the Strait of Hormuz being the best option, he added.
The narrow waterway between Oman and Iran is the primary export route for oil produced by Saudi Arabia, the UAE, Kuwait, Qatar, Iraq, Bahrain and Iran, with exports averaging about 20 million bpd in 2025.
About half of the oil volumes transported through the strait are exports from Saudi Arabia and the UAE, with the remainder from Iraq, Kuwait and Iran. About half of these exports go to China and India.
Although the Strait of Hormuz officially remains open for traffic, shipping companies are avoiding the route following warnings from the Islamic Revolutionary Guard Corps to avoid the channel.
Inbound transit of vessels through the waterway fell to zero on Tuesday, from 55 on February 26, the latest data from Bloomberg shows. Shipping companies are also avoiding the route due to a rise in costs related to insurance and war risk surcharges.
“The strait is not formally closed, but vessels are increasingly avoiding it given the risk of attack by Iran or its proxies,” Angelina Valavina, EMEA head of natural resources and commodities at Fitch Ratings, said. “Oil majors have halted shipments for safety reasons, and insurers are cancelling war risk cover for vessels.”
She expects the effective closure of the strait to be temporary as it is “a vital artery for seaborne oil transportation, with limited alternative routes".
“If the strait were to remain effectively closed for a protracted period, naval protection for tanker navigation could be considered, as occurred during the 1980s Iran–Iraq war.”
This week, President Donald Trump said he had ordered the US-based Development Finance Corporation to provide, at "a very reasonable price", political risk insurance and guarantees for the financial security of all maritime trade, especially energy shipments travelling through the Gulf. The US will also begin escorting tankers through the Strait of Hormuz if necessary, he said.
Oversupply concerns limit price rise
Oversupply concerns are expected to outweigh geopolitical risks to oil supply and limit oil price increases, according to Fitch analysis on Thursday.
The ratings agency expects the trend to continue in 2026 despite disruption to supplies from the Iran war. A rise in global oil inventories is also expected to cushion the Strait of Hormuz supply shock
"Total global inventories stood at 8.2 billion barrels at end-2025. This is sufficient to cover a halt in oil shipments via the Strait of Hormuz for over 400 days," Ms Valavina said.
