“Weaponising the Strait of Hormuz … is economic terrorism against every nation,” Dr Sultan Al Jaber, Minister of Industry and Advanced Technology and managing director and group chief executive of Adnoc, told a flagship energy conference in Houston this month.
Meanwhile, Iran is trying to set up a “Tehran tollbooth” in this narrow waterway, to charge vessels and screen them for political acceptability. All the Gulf countries need alternatives, so they cannot be held hostage.
From about 86 tanker passages daily before the war, now five or so vessels cross each day. These are either serving Iran, or cleared politically with the Revolutionary Guards, diverted north through Iranian coastal waters, usually escaping rather than entering the Gulf, and apparently in many cases paying a fee reported at $2 million each, in cryptocurrency or Chinese yuan.
There is no guarantee that any political or military solution will arrive soon. Even if full-scale fighting winds down, Iran may still harass or extort shipping. So all the Gulf countries need alternatives to Hormuz – as far as possible, for their exports of oil and gas and other products, and their essential imports.
The UAE and Saudi Arabia sensibly built bypass oil pipelines well before the crisis, running respectively to Fujairah on the Indian Ocean, and Yanbu on the Red Sea coast. The UAE’s pipeline can carry up to 1.7 million barrels per day, and the Saudi East-West line up to 7 million bpd. Adnoc has also built 42 million barrels of underground storage at Fujairah.
Although outside the Strait, Fujairah has come under Iranian missile and drone attacks several times. Yanbu, much further from Iran, has also been struck. Tanker loading capacity appears to limit Yanbu to about 5 million bpd of exports.
Both countries need the ability to divert their full pre-war exports, running at maximum capacity. Saudi Arabia at 12.5 million bpd of production could export about 9.3 million bpd of crude oil, and the UAE, at 4.85 million bpd of output, could export about 3.6 million bpd. In 2024, Adnoc planned to build another 1.5 million bpd pipeline to connect its offshore fields to Fujairah.
It may be possible to use drag-reducing agents to boost throughput in the existing pipes. These are additives used to reduce turbulence and increase flows in pipelines. The countries concerned should also should build more strategic storage at these loading points, safely below ground.
The Habshan–Fujairah oil pipeline, also known as Abu Dhabi crude oil pipeline (Adcop) was reported to cost $4.2 billion after completion in 2012, which might be about $6 billion today allowing for inflation. Under current wartime oil pricing, the invaluable exports it carries would pay within a month. A route to Oman’s south-east port of Duqm, well away from the Strait, and a major refining and oil storage hub, might on the same basis cost about $10 billion.
The risk-reward calculation is overwhelmingly in favour of building such insurance, even if it is used once in two decades. Gulf countries could invest in such pipelines themselves, using their sovereign wealth holdings, and they could also invite affected friendly nations – such as Japan, South Korea and India – to participate.
Kuwait, Bahrain and Qatar have no bypasses. This is a consequence of geography: it is always uncomfortable to rely on a neighbour for a lifeline. Their exports would have to run through Saudi Arabia, or in the case of Kuwait, perhaps Iraq.
Short-term incentives are misaligned. If most Gulf exports are cut off but Saudi Arabia and the UAE can export normally, they benefit from higher prices, at the expense of their blockaded neighbours. That obviously does not apply if everyone has usable bypasses.
However, in a wider strategic sense, the Gulf has to stand together. It cannot allow Tehran to put pressure on individual Gulf countries, nor on the world economy.
Gulf countries produce a wide range of crude oils, from the sticky sludge of Iraq’s Basrah Heavy and Kuwait’s Lower Fars, to Saudi Arabia’s Super Light, Abu Dhabi’s Murban, and the even lighter condensates from natural gas extraction. Mixing them is undesirable; it could be an emergency option, but ideally pipelines and storage and loading facilities would be able to keep them separate.
Single pipelines are also vulnerable to attack. The lines themselves can be easily repaired, but pumping stations and loading terminals are weak points. The Houthi forces in Yemen are also able to impede shipping through the southern Red Sea, which could force exports from Yanbu to take the long route through the Suez Canal and round Africa to Asia. So a more diverse system of pipelines, with interconnections and redundancies, is harder to disrupt.
Not even Israeli Prime Minister Benjamin Netanyahu can have seriously believed his own proposal for a pipeline through Israel to the Mediterranean, which would merely hand leverage over the Gulf from Tehran to Tel Aviv. Realistic routes go to the UAE east coast, Oman, the Saudi Red Sea coast or Jordan.
The benefit of such alternatives even applies to Iraq. The Gulf should not want Baghdad to fall entirely under Iran’s sway. Tehran’s ability to cut off Iraq’s 3.3 million bpd of Basra oil exports is a crucial lever. The Ipsa-2 pipeline, built in 1987 to help Iraq avoid Iranian blockade, runs through Saudi Arabia to the Red Sea, but Riyadh seized it in 1990 when Saddam Hussein invaded Kuwait.
Iraq’s geography could also be a strategic asset for the Gulf region: it has an existing pipeline through Turkey, another through Syria that could be rehabilitated, and long-held plans for a line to Aqaba in Jordan. Baghdad hopes to ease this crisis by sending 650,000 bpd via Turkey, and the line within Turkey could carry between 900,000 bpd and 1.5 million bpd, if appropriately repaired and connected.
Iran opposed the Jordanian route through its agents in Iraq, for purposes which are now all too obvious. Kuwait, at least, would greatly benefit from the option to send oil through Iraq, while Baghdad could gain a per-barrel tariff.
Free exit for crude oil would solve a lot of the problems of Hormuz – but not all. The Gulf also needs to boost its rail network, such as the Saudi Landbridge from Riyadh to Jeddah, or the Etihad Rail connection to Sohar in Oman. It has to be able to export its refined oil products, plastics, fertilisers, metals and other goods, and bring in essential inputs. That means investment in ports and “dry ports” inland, and the specialist railcars to carry fuels.
Iran’s encouragement to keep this war going depends on harming its neighbours and the global economy. The war may be short or long. But investing in alternatives to the Strait of Hormuz boosts the chances of a climbdown now, and a more secure peace to come.
