Key Takeaways:
Middle East oil producers are spending tens of billions of dollars on pipeline and port projects that could divert more than 60% of Persian Gulf crude exports away from the Strait of Hormuz by the end of 2028.
Oil producers across the Persian Gulf are accelerating seven pipeline projects and a new deepwater port to bypass the Strait of Hormuz, aiming to cut Tehran's leverage over a waterway that once carried 20% of the world's crude.
"Right now, too much of the world's energy still moves through too few choke points. That is exactly why the UAE made the decision more than a decade ago to invest in infrastructure that bypasses the Strait of Hormuz," Sultan Al Jaber, chief executive of the Abu Dhabi National Oil Company, told the Atlantic Council in May.
The UAE's West-East Pipeline is about 50% complete, with Crown Prince Sheikh Khaled bin Mohamed bin Zayed ordering its completion by 2027. The 252-mile conduit will run parallel to the existing Fujairah pipeline and double the country's overland capacity to 3.6 million barrels a day. Iraq began construction in May on the 435-mile Basra-Haditha pipeline, allocating about $1.5 billion to carry 2.5 million barrels per day to connections with Jordan, Syria and Turkey. Saudi Arabia is in preliminary talks with neighbors to expand its East-West Petroline to 9 million barrels per day, according to people familiar with the matter.
The infrastructure push reflects a strategic conviction that the decades-old assumption Gulf oil must pass through Hormuz is no longer acceptable. Before the US and Israel started the war on Feb. 28, about 20 million barrels of crude moved through the strait each day. Goldman Sachs estimates the new routes could reduce that to between 7 million and 9 million barrels, with more than 45% of Gulf exports bypassing the chokepoint by end-2027 and above 60% by end-2028.
Existing pipelines already at capacity
Saudi Arabia's East-West Petroline, stretching 1,200 kilometers from Abqaiq to the Red Sea port of Yanbu, is already operating at its full capacity of roughly 7 million barrels per day. The UAE's Abu Dhabi Crude Oil Pipeline, which carries as much as 1.8 million barrels per day from Habshan to Fujairah outside the strait, is also maxed out. Together, these existing routes provide about 8 million to 9 million barrels per day of bypass capacity — far short of the 17 million to 21 million barrels that typically transited through Hormuz before the conflict.
The new projects represent more than engineering upgrades, according to Wall Street analysts. They amount to a strategic redesign of the region's energy export network intended to reduce the market disruption that occurs whenever tensions with Iran escalate.
Port plans and the Malacca risk
The UAE is also planning a new port and container terminal on the Arabian Sea side of the strait to allow more goods into the region without transiting the waterway, the Financial Times reported. The facility would rival the country's flagship Jebel Ali hub and further reduce dependence on the strait.
The push comes as Iran has threatened to impose tolls on the strait that could cost tens of billions of dollars, and in some cases is extracting millions of dollars in protection money per oil tanker. Tehran struck three commercial vessels in the strait on Tuesday that were using an alternative route near Oman's coast, according to reports.
The precedent has energy investors watching another critical maritime checkpoint: the Strait of Malacca. More than 94,000 vessels traverse the 900-kilometer waterway annually, moving up to 30% of globally traded goods and nearly half of the world's seaborne oil. If transit fees are normalized in the Middle East, states surrounding Malacca may see an opportunity to follow suit, analysts warn.
Limits of the bypass strategy
Despite the acceleration, the Middle East will not be able to completely eliminate Iran's leverage. Some of the new pipeline routes depend on stability in the Red Sea, which has been threatened in recent weeks by Iran-backed Houthi rebels in Yemen who have warned of attacking the Bab el-Mandeb strait. Cross-border agreements and security guarantees remain difficult to secure, and the projects require tens of billions of dollars in investment.
"The last time a comparable infrastructure shift was attempted in the region, political disputes delayed the Iraq-Turkey pipeline for years," said Alexandra Paulus, an analyst at Goldman Sachs. The bank has identified seven major pipeline projects that are planned, under construction or being expanded across the Gulf.
This article is for informational purposes only and does not constitute investment advice.
