Gulf states accelerate pipeline and port investment to bypass Strait of Hormuz

The disruption of oil and gas flows from the Persian Gulf, driven by the conflict between the United States, Israel and Iran, has prompted a significant shift in energy logistics across the Middle East. While the closure of the Strait of Hormuz has imposed soaring costs and supply uncertainty on importing nations, it has simultaneously catalysed a rush to construct alternative conduits for exporting hydrocarbons. This strategic pivot aims to reduce reliance on a single, geopolitically vulnerable export corridor by developing new infrastructure that bypasses the strait entirely.

The economic impact of the disruption has been substantial. According to a report from the Finnish Centre for Energy Research and Clean Air, the global total energy import bill increased by $330 billion between March and August. The report highlighted that this surge would have been avoided had the Strait of Hormuz remained open, underscoring the world’s heavy dependence on this specific route. In response to the blockage, Persian Gulf producers have been forced to idle wells and, in some instances, ship stored oil on tankers with transponders deactivated. However, the primary long-term response has been the development of alternative routes.

Saudi Arabia has already demonstrated the utility of such alternatives by utilising its East-West pipeline to reroute export flows from the Persian Gulf to the Red Sea. In the initial weeks of the conflict, the kingdom ramped up throughput to approximately seven million barrels of crude daily, a volume significantly higher than the pipeline’s previous handling capacity. The main constraint in this rerouting was the loading capacity at Yanbu Port. However, the Red Sea route presented its own challenges due to the presence of the Yemeni Houthis in the Bab el-Mandeb strait. Consequently, Saudi Arabia was compelled to reroute shipments again, this time via the Suez Canal, which offers even more constrained tanker passage capacity. Despite these limitations, the existence of multiple options has proven beneficial in maintaining export continuity.

The United Arab Emirates is pursuing a more permanent solution by planning to double the capacity of its pipeline to Fujairah, a port located just outside the Strait of Hormuz. The state oil and gas major, ADNOC, intends to construct the West-East 1 Pipeline, a project expected to become operational next year. This expansion is designed to increase the UAE’s export capacity through Fujairah from 1.8 million barrels daily to 3.6 million barrels daily, thereby better meeting global demand. Major international energy companies are already involved in these efforts. TotalEnergies has announced its participation in the ADNOC pipeline expansion, as well as a separate pipeline project in Iraq.

Iraq is also seeking to diversify its export routes. The country is in talks with the new Syrian government to repair an old pipeline connecting the two nations, which has been unused for two decades. Syrian state oil company officials estimate this repair would take a maximum of three years. This is considered a faster timeline than the proposed new pipeline through Syria to the Mediterranean coast, which a Reuters report indicated would cost at least $15 billion and require a minimum of four years to build. The United States has voiced support for the longer-term project, but Iraq is prioritising the quicker repair option. Additionally, Iraq is in discussions with Turkey to expand oil flows via the Kirkuk-Ceyhan pipeline.

Regional cooperation is also intensifying. Kuwait is in talks with the UAE and Saudi Arabia to expand the regional pipeline network, aiming to access Fujairah and Saudi Red Sea ports as alternatives to Hormuz. This move is critical for Kuwait, which faces an eight per cent contraction in GDP this year due to the war. Qatar, whose liquefied natural gas exports are entirely dependent on the Strait of Hormuz, is also expected to experience economic shrinkage. To fund these infrastructure expansions, Saudi Arabia and the UAE have approached Japan for financial support. Japan has agreed to participate, a decision driven by its heavy reliance on Middle Eastern oil imports and the significant shock it suffered when the strait was closed.

Investment in port infrastructure is also becoming a priority. Reuters reported last week that ports have become a mission-critical priority for Gulf state governments as they address the economic consequences of the war. One source described ports as the next major focus for investment, following the sports sector. The latest developments, including renewed strikes by the United States on rocket launchers inside the Strait of Hormuz and Iranian retaliatory strikes on US bases in Jordan, indicate that the crisis is likely to persist. These ongoing hostilities are motivating local governments to double down on the development of alternative oil and gas routes, which, while time-consuming to build, are expected to reshape the risk profile of the Middle East energy sector.