Middle East oil producers plan to build new pipelines to reduce their dependence on the Strait of Hormuz, as Iran disrupts the Gulf states’ seaborne crude exports with near daily attacks on tankers.
But new pipelines will not end the threat to the region’s energy exports, analysts said. This infrastructure is just as vulnerable to the low-cost, asymmetric attacks that have targeted ships in Hormuz, they said.
The U.S. is supporting Iraq’s effort to rebuild a crude oil pipeline that runs from its northern city of Kirkuk through Syria to the Mediterranean Sea, a State Department official told CNBC Thursday. U.S. companies are expected to play a role in the pipeline’s construction, the official said.
The disruption in Hormuz has hit Iraq, OPEC’s second largest producer, particularly hard because it exports mostly through the southern port city of Basra with limited alternatives. Its production was more than 50% in June to 1.9 million barrels per day compared to the 4.2 million bpd it pumped in February before the U.S. and Israel launched the war against Iran.
The United Arab Emirates, meanwhile, plans to double its export capacity outside Hormuz with the completion of a second pipeline to the Port of Fujairah on the Gulf of Oman. Saudi Arabia is considering expanding its pipeline to the Red Sea by 2 million bpd, people close to the matter told Reuters last week.
These projects are just three of the seven pipelines in the Middle East that are either under construction or in the planning phase, Goldman Sachs analysts said in a note Sunday. Pipeline capacity in region could grow to more than 14 million bpd by the end of 2028, the analysts said. This is more than 60% of the seven Gulf states’ pre-war export volume of 23 million bpd, they said.
But the pipelines are more of a geopolitical hedge against disruptions in Hormuz than a replacement for the strait, said Jennifer Li, a geopolitical analyst at the energy consulting firm Rystad.
The UAE’s existing West-East pipeline to Gulf of Oman and Saudi’s East-West pipeline to the Red Sea have acted as crucial relief valves for the oil market during the Iran war. Abu Dhabi and Riyadh have ramped exports through those pipelines, diverting millions of barrels per day around Hormuz.
The Gulf states need to diversify their export routes as much as possible but pipelines are vulnerable, Li said. Iran struck a pumping station on Saudi’s pipeline to the Red Sea in April, which slashed throughput by 700,000 bpd.
“The problem isn’t the waterway,” Bob McNally, founder of Rapidan Energy, told CNBC’s “Power Lunch” on Monday. “It’s that Iran can use weapons to attack loading facilities, pumping stations, the end stations, these terminals, and the storage units of these pipelines.”
Iran and its Houthi allies in Yemen are now threatening to disrupt oil exports through the Red Sea. A senior Houthi political official, Mohammed al-Farah, said earlier this week that the militant group is prepared to shut down the Bab el-Mandeb Strait in coordination with Iran, according to state media.
Tehran has asked the Houthis to close the strait if the U.S. bombs Iran’s power infrastructure, sources told Reuters Thursday. The Bab el-Mandeb connects the Red Sea to the Gulf of Aden and world markets.
Shutting the strait down would block in the millions of barrels per day of oil that the Saudis have diverted through their pipeline to the Red Sea export terminal of Yanbu.
“The importance of of Yanbu to both Saudi Arabia and to the the global oil market can’t be underestimated,” said Michelle Wiese Bockmann, senior maritime intelligence analyst at Windward.
