From Syria to UAE, the race to bypass Strait of Hormuz is on
The Middle East is entering a pipeline-building boom from the Mediterranean to the Red Sea and the Gulf of Oman, as Arab oil producers rush to bypass the Strait of Hormuz, where Iran is fighting to exert its dominance over global energy flows.
Tens of billions of dollars will be spent in the coming years to bypass the chokepoint where the US and Iran are battling for control, experts say. And while the Middle East has a recent history of grandiose infrastructure projects that fizzle out, this time the commitments to rewire the flow of oil are real.
“When we speak to our customers in the region, they say they never want to deal with this again,” Artem Abramov, the deputy head of analysis at Rystad Energy, told Middle East Eye.
“These bypass projects will move forward.”
The UAE is building a second pipeline to the port of Fujairah to bypass the Strait of Hormuz, doubling its export capacity by 2027.
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Meanwhile, Iraq - the second-largest producer in the oil cartel Opec - signed a deal with Syria in July to rehabilitate a pipeline from its northern oil fields to Syria’s Mediterranean coast.
MEE was the first to reveal the project and its US backing.
Saudi Arabia’s East-West Pipeline has emerged as the model for the region. It brings crude from the Gulf coast to the kingdom's Red Sea. Riyadh is also eyeing ways to boost its capacity, further diluting its reliance on the Strait of Hormuz.
But the reconfiguring of oil flows is already positioning winners and losers.
'Kuwait and Bahrain are the biggest losers'
The war has effectively cemented Saudi Arabia and the UAE as the region’s main power brokers and most dependable producers, while the vulnerabilities of smaller states like Kuwait and Bahrain have been exposed.
“UAE and Saudi will realise the biggest windfalls from this. Kuwait and Bahrain are the biggest losers,” Gregory Brew, a senior analyst at the Eurasia Group who specialises in energy and Iran, told MEE.
'Kuwait and Bahrain will require transit agreements and potentially revenue-sharing deals with Saudi Arabia and the UAE'
- Gregory Brew, Eurasia Group
Much of this rests on geography.
Kuwait was once linked to the Ottoman province of Basra in modern-day Iraq. It sits at the northernmost tip of Hormuz and relies on the waterway for nearly all of its oil exports.
Likewise, Bahrain is an island kingdom whose only land connection to the outside world is a causeway with Saudi Arabia.
In many ways, geography dictates which direction the oil flows. Iraq is a case in point. Around 70 percent of Iraq’s oil exports have historically flowed to Asia, thanks to the country's reliance on the port of Basra that opens up into the Persian Gulf and eventually into the Strait of Hormuz.
A consortium comprising US energy company Chevron, Los Angeles-based TI Capital, and the Syrian-Qatari billionaire al-Khayyat brothers has a plan to rehabilitate a decades-old pipeline Iraq once had to Syria’s port of Baniyas in the Mediterranean.
But if the project is completed, Iraqi oil will likely end up being sold to Europe because the "very large crude carriers" or VLCCs that make oil sales to Asia affordable cannot transit the Suez Canal, and the long journey around Africa would be too expensive, Brew said.
“Iraq wants to tap the Asian market. But with this pipeline they would be sending crude to Europe. The ability to generate considerable revenues from that market is constrained,” he told MEE.
The Gulf oil producers that have emerged stronger are Saudi Arabia and the UAE because their geography allows them to bypass Hormuz and still sell to Asia’s big markets.
'Serious money will be spent'
The UAE’s oil production hit an all-time high in June, averaging 4.1 million barrels per day.
The UAE has kept exports flowing with maritime transits through Hormuz and exports via a pipeline terminating at Fujairah Port - which sits outside the waterway.
The pipeline has a capacity of up to 1.8 million bpd. The UAE plans to double that output with a new pipeline by 2027.
The Abu Dhabi National Oil Company is also mulling a third pipeline that could transport refined petroleum products like jet fuel, gasoline and diesel to Fujairah, the company’s vice president said last month.
“The region has a track record of building these large infrastructure projects fast,” Abramov, at Rystad Energy, told MEE.
“They don’t always require pure economic rationale,” he added.
Ben Cahill, a senior fellow at the Atlantic Council, a Washington-based think tank, told MEE that “collectively” the rush to bypass Hormuz could see pipeline and port projects totalling tens of billions of dollars.
“These pipelines are expensive and geopolitically complicated, but the Gulf states will spend serious money for back-up options,” Cahill said.
“This is a durable trend. There will be backing from sovereign wealth funds and probably infrastructure investors,” he added.
Or, as Greg Priddy, an energy expert at the Center for the National Interest, told MEE: “What used to look like a $5 or $10bn extraneous bet now looks necessary”.
Saudi Arabia’s East-West Pipeline has emerged as the model for the region.
Red Sea port expansions
The East-West Pipeline, originally constructed in the 1980s and upgraded in subsequent decades, runs from Abqaiq oil field on the kingdom's eastern Gulf coast to the port of Yanbu on the Red Sea.
It has allowed Riyadh to export around four million bpd of oil. The kingdom’s pre-war exports hovered slightly above seven million bpd.
The kingdom’s oil revenue actually hit a three-year high in March despite exporting lower volumes because of higher oil prices.
Diplomats and energy analysts say Saudi Arabia is actively looking to expand the pipeline's capacity. Reuters reported this month that the kingdom is eyeing a two million bpd increase in capacity.
'The caveat to all these bypasses is that they are still vulnerable to Iranian missiles and drones'
- Greg Priddy, Center for the National Interest
“Our assessment is that Saudi Arabia will need to build a parallel line to do so,” Abramov at Rystad told MEE.
The pipeline has a total capacity of seven million bpd, but around two million bpd goes to refineries on the kingdom’s west coast and is consumed locally.
Saudi Arabia’s real bottleneck, though, is at the port of Yanbu, which would need to be upgraded to accommodate more than two VLCCs at the same time, Abramov told MEE.
Building a new network of pipelines could actually increase Saudi Arabia and the UAE’s regional clout. Kuwait said in June that it is looking at a pipeline to connect to Saudi Arabia.
"We are in discussions with our brothers in Saudi Arabia and in the Emirates to look at how to expand the pipeline system that they have to accommodate Kuwaiti barrels," Kuwait Petroleum Corporation CEO Sheikh Nawaf al-Sabah said at an Atlantic Council event in June.
Pipelines aren’t complicated to build, but the region has a poor track record of cooperating on such projects. The Dolphin Pipeline, which sends Qatari gas to the UAE and Oman, is an exception.friski
“Kuwait and Bahrain will require transit agreements and potentially revenue-sharing deals with Saudi Arabia and the UAE,” Brew, at the Eurasia Group, told MEE.
"It will increase their leverage."
Qatar, which exports liquefied natural gas, is likely to remain totally dependent on the Strait of Hormuz, analysts say.
'Balance in warfare is with offence'
But new pipelines will not substitute for a security framework with Iran.
The Russia-Ukraine war provides an example. Ukraine has crippled Russia's refining capacity with drone and missile strikes. The Gulf states' oil installations are a stone's throw away from Iran compared to Moscow's with Ukraine.
“The caveat to all these bypasses is that they are still vulnerable to Iranian missiles and drones.
The balance in warfare has swung decidedly to offence, away from defence, making it hard to protect these assets,” Priddy told MEE.
“Fujairah is a great example. It is close enough to Iran that they can hit anything there with accuracy,” he added.
Saudi Arabia, the most successful state at bypassing Hormuz, underscores the vulnerabilities.
The Houthis, who are aligned with Iran, declared an embargo against Saudi Arabian shipping this week. At least eight tankers have reversed course in the Red Sea rather than risk transiting the Bab el-Mandeb Strait and facing a potential Houthi attack.
The Trump administration brushed off Iran’s ability to exert control over Hormuz when it attacked the Islamic Republic alongside Israel in February. But some analysts and diplomats now say that Iran may be overplaying its hand in the waterway.
Despite signing a ceasefire with the US that provided a critical sanctions waiver, Iran attacked Saudi Arabian, Emirati and Qatari vessels transiting Hormuz through Oman’s territorial waters earlier this month.
Fighting has escalated since then, with Iran attacking Kuwait, Bahrain and Jordan.
One western diplomat familiar with Yemen said that the Houthis’ decision to declare a blockade on Saudi Arabian ports this week came under intense Iranian pressure.
"Iran might have overplayed its hand in the Strait of Hormuz.
It will need to escalate in new ways to impose itself," the official said.
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