Decades-Old Oil Trade Transformed by Iran Conflict; Gulf States Seek Alternatives to Hormuz Strait
Summary and Editorial Review: The ongoing conflict between Iran and the United States has significantly reduced oil shipments through the Strait of Hormuz, prompting Gulf nations to explore alternative routes. The United Arab Emirates is constructing new pipelines and enhancing capacity to export oil directly from Abu Dhabi, bypassing Hormuz Strait. Similarly, Saudi Arabia and Iraq have launched initiatives to repair and boost capacity of their old pipelines utilizing the Red Sea route.
On July 14, Kathmandu – Six months ago, Gulf countries enjoyed relatively smooth conditions for exporting oil. Crude was transported worldwide via the Strait of Hormuz, known for its low costs, reaching the highest bidders. Since the outbreak of conflict with Iran, however, circumstances have shifted drastically. Following the February 28 attacks by the US and Israel against Iran, oil shipments through the Strait of Hormuz have been continually disrupted. Risks from maritime explosive tunnels, missile and drone attacks, a US-Iran blockade, and escalating insurance costs have curtailed daily crude oil flows from 20 million barrels to just 3.7 million barrels. As a result, Gulf countries including Saudi Arabia, UAE, and Kuwait have initiated efforts to reduce dependence on the Hormuz Strait. This includes construction of new pipelines, capacity expansion of existing pipelines, and storage arrangements in Asian countries.
UAE’s Strategic Shift: Exporting Oil Without Passing Hormuz
The UAE exemplifies this strategic transformation. Its economy, heavily reliant on trade and maritime routes, has been deeply affected by the Hormuz crisis. Consequently, the UAE is developing new routes to decrease reliance on the Strait. Currently, the UAE is focusing on three main areas: building new pipelines, expanding capacity, and investing in the gas sector.
The construction of a second oil pipeline to Fujairah Port in Oman is progressing rapidly, directly connecting Abu Dhabi’s oil fields to Fujairah, enabling tankers to avoid the Strait of Hormuz. Once completed, the UAE will boost its export capacity up to 3.6 million barrels per day, effectively sending almost all of Abu Dhabi’s onshore crude oil to global markets without crossing Hormuz. Here, “onshore oil” refers to crude extracted from land reservoirs, whereas “offshore oil” is drawn via subsea pipelines.
Additionally, the UAE is working to secure its gas trade. The government-owned ADNOC has announced an $8.2 billion investment in natural gas projects. Plans are underway to build a new LNG export terminal on the eastern coast, which in the future will help reduce gas export dependence on the Strait of Hormuz.
Saudi Arabia Develops Red Sea Route
In response to heightened risks in the Strait of Hormuz, Saudi Arabia has accelerated and expanded usage of its 1,201-kilometer East-West Pipeline, constructed during the Iran-Iraq war era, linking eastern oil fields to the Red Sea’s Yanbu Port. Currently, Saudi Arabia exports approximately 7 million barrels daily through the Red Sea route and aims to add 1 to 2 million more barrels per day. Parallel new pipelines for refined petroleum products are also under construction.
Kuwait and Iraq are actively pursuing alternate routes as well. Kuwait is in talks with Saudi Arabia and other Arab states to build pipelines connecting its oil fields to ports on the Red Sea or Oman. Meanwhile, Iraq and Jordan have resumed a long-stalled pipeline project that could deliver up to 1 million barrels daily to the Red Sea’s Aqaba port. Iraq is also speeding up repairs on a damaged pipeline running from Kirkuk to Syria’s Mediterranean coast.
Beyond pipelines, Gulf states are expanding oil storage in Asian countries such as India, Japan, and South Korea. Their goal is to ensure continued oil availability to key markets even if the Strait of Hormuz is completely closed, thereby preventing supply disruptions.
However, the new routes do not guarantee complete security. Most of Saudi Arabia’s oil currently passes through the Red Sea and Bab al-Mandeb Strait, where Yemen’s Houthi rebels regularly attack ships. Just this week, a Red Sea attack on a vessel resulted in six fatalities. Experts emphasize that while Gulf nations must reduce dependency on Hormuz, completely abandoning it is unlikely. Carol Nakhle, head of Crystal Energy, notes, “There are significant benefits to the Strait of Hormuz that cannot be fully replaced. But relying solely on this route is no longer viable.”
