Strait of Hormuz oil supply crunch has countries looking for workarounds

Middle Eastern nations are building out their oil shipping infrastructure, seeking long-term workarounds for the Strait of Hormuz to make it less of chokepoint.

Iran’s blockade of the waterway, through which about 20 percent of the world’s oil consumption flowed on a typical day prior to the war, has upended markets and sent global oil prices surging.

As of Friday, international benchmark Brent crude oil was trading at about $87 per barrel, well above the approximately $70 per barrel before the war broke out. During the conflict, prices rose as high as about $120.

The supply squeeze from Hormuz’s closure has also drawn down global oil supplies, with the U.S. emergency supply expected to hit its lowest level since 1983.

And now, Mideast countries are looking for alternatives.

This week, Saudi Arabia and Turkey signed agreements for a rail line that could eventually extend into Oman and serve as a way around the strait.

Meanwhile, the United Arab Emirates (UAE) and Iraq are looking to expedite pipeline projects.

CNBC reported that the Iraqi project would triple existing exports from 220,000 barrels per day to 770,000.

The Emirati project would reportedly double the UAE’s exports through its existing Habshan-Fujairah pipeline.

The country is also eyeing another pipeline to transport gasoline, diesel and jet fuel, the Financial Times reported.

The supply crunch is also reportedly generating new interest in pipelines to bring gas from Africa to Europe.

“Even if the straits stay closed, what’ll happen will be they’ll start building pipelines to get into the Red Sea,” White House National Economic Council Director Kevin Hassett told CNBC earlier this month when asked what happens if the strait remains shut through the end of the month.

Such fixes, however, are likely to be long-term solutions rather than ones.

“In most cases, this is a one- to two- to three-year project,” said Elisa Ewers, senior fellow for Middle East studies at the Council on Foreign Relations. “This is not a ‘will be done in two months’ kind of scenario.”

The UAE has indicated that its oil pipeline could come online next year.

But, overall, the potential alternatives are imperfect.

“We want to make sure that — as we try to improve energy security and affordability in future years — that we don’t over-index on one solution instead of having a more diversified approach to those supply challenges,” said Clay Seigle, non-resident scholar in energy security at the Center for Strategic and International Studies.

He said that pipelines have been “sabotaged for many, many decades in the 20th and 21st centuries, and you can look at anecdotes from Colombia to Nigeria to Iraq.”

“Rail can be a lot more secure, I think, from these kinds of attacks, because there’s redundancies,” he said, but noted that trains and trucks don’t allow for the transport of large volumes like pipelines do.

And, if the oil can make it to other waterways — the Red Sea or the Mediterranean — each of those comes with its own challenges.

The Red Sea is narrow and has its own potential chokepoint at the Bab el-Mandeb Strait off the coast of Yemen.

Kristian Coates Ulrichsen, fellow for the Middle East at Rice University’s Baker Institute, noted that the Red Sea is “within range of Iranian missiles and drones and Houthi missiles and drones” as well as “potentially vulnerable to being blocked at its southern end.”

Meanwhile, the Mediterranean could enable oil shipping to Europe, but is geographically disconnected from much of Asia.

President Trump has indicated that an end to the war could be coming soon, pledging that the Strait of Hormuz will be open for business as soon as the conflict is resolved. But, during the war, Iran suggested that it could charge tolls to travel through the strait even in peacetime, a possibility Trump has rejected.

But even if things do return to normal soon, experts say that Iran’s blockade of the strait has highlighted the long-term vulnerability posed by the singular, narrow shipping route, making investment in alternatives more likely.

“What this war has taught, especially the countries in the neighborhood, is that they need alternatives,” Ewers said.

Strait of Hormuz oil supply crunch has countries looking for workarounds

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