At a time when the security situation is indeed complex, the Persian Gulf states are eyeing new oil pipelines to bypass Hormuz. One option is to revive US-led plans for an ambitious corridor that would stretch from India, through the Gulf and then to Europe, called the IMEC.
The threat of unrestricted Iranian control over the Strait of Hormuz is prompting Gulf states to reconsider costly plans for pipelines that bypass it so they can continue to export oil and gas. Officials and industry leaders say new pipelines may be the only way to reduce the Gulf states' continued vulnerability to disruptions in the strait, although such projects would be costly, politically complex and take years to complete.
“The security situation in the Persian Gulf is really complex. The US-Israeli strikes against Iran started sharply and seem to be continuing relentlessly. There has been retaliation by the Iranians, both against the attackers and against third countries, the GCC countries in the Persian Gulf, and some attacks on shipping. So if you are a shipping operator, a ship captain in that region, it is very complicated what is happening and you have to understand whether you can move, whether you are going to stay, and whether it is economically viable to do your job.”
The current conflict has highlighted the strategic value of Saudi Arabia’s 1,200km East-West pipeline. Built in the 1980s after fears that the Iran-Iraq “tanker war” would close the strait, it is now a key lifeline, transporting 7 million barrels of oil a day to the Red Sea port of Yanbu, bypassing Hormuz entirely. The kingdom is considering how it can export more of its 10.2 million barrels of daily output through the pipeline, rather than through Iranian-controlled waters.
The most resilient option is not a single alternative pipeline, but a network of corridors. In the long term, any new pipelines are likely to form parts of trade routes through which a wider range of goods beyond oil and gas can flow.
“Shipping companies and oil companies are private and in business to make money. To transport around the world you need to have security. If the risk is high and the costs are too high, those companies will not trade. It is imperative that state actors, shipping companies, oil and gas companies work together, share information and best practices, to ensure that markets respond to what is happening.”
Proposals for multi-country routes from Iraq through Jordan, Syria or Turkey would cost $15–20 billion. But security risks include unexploded bombs in Iraq and the continued presence of ISIS or other militant groups. Pipelines to ports in Oman would face the difficulty of traversing the desert and rocky mountains. Omani ports are not immune to Iranian threats; drone attacks on the key port of Salalah forced it to temporarily close.
Political challenges include who will operate the pipeline and control the flow. A pipeline network would require Gulf countries to abandon individualist policies and come together.
In the short term, the most viable options may be to expand the East-West pipeline and the existing Abu Dhabi-Fujairah route. Saudi Arabia could also develop additional export terminals on the Red Sea coast, including the deepwater port being built for the Neom project.
The US and Israeli war with Iran and rising tensions in the Strait of Hormuz have disrupted regional energy flows, contributing to supply concerns and pressure on global prices. Since March, Iran has announced restrictions on navigation in the strategic waterway, warning that it may target ships that pass through without coordination.
About 20% of global oil supply passes through the strait every day, while the increased uncertainty has increased oil prices as well as transportation and insurance costs.
