Middle Eastern oil producers plan to build new pipelines to reduce their reliance on the Strait of Hormuz, as Iran disrupts maritime crude exports from Gulf states with near-daily attacks on oil tankers.
But the new pipelines will not end the threat to the region’s energy exports, analysts say. This infrastructure is equally vulnerable to the low-cost asymmetric attacks that have targeted ships in Hormuz, they said.
The United States is supporting Iraq’s efforts to rebuild an oil pipeline linking the northern city of Kirkuk to the Mediterranean Sea through Syria, a State Department official told CNBC on Thursday. U.S. companies are expected to play a role in building the pipeline, the official said.
The disruptions in Hormuz have hit Iraq, OPEC’s second-largest producer, particularly hard as it exports mainly through the southern port city of Basra with limited alternatives. Its production fell more than 50% in June, to 1.9 million barrels per day, compared to the 4.2 million barrels per day it was pumping in February before the United States and Israel launched war against Iran.
The UAE, meanwhile, plans to double its export capacity outside of Hormuz with the completion of a second pipeline at the port of Fujairah on the Gulf of Oman. Saudi Arabia is considering expanding its Red Sea pipeline by 2 million bpd, people familiar with the matter said. Reuters last week.
These projects represent only three of seven pipelines in the Middle East that are either under construction or in the planning stages, Goldman Sachs analysts said in a note on Sunday. Pipeline capacity in the region could reach more than 14 million bpd by the end of 2028, analysts say. This represents 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 disruption in Hormuz than a replacement for the strait, said Jennifer Li, a geopolitical analyst at energy consultancy Rystad.
The UAE’s existing west-east pipeline to the Gulf of Oman and Saudi Arabia’s east-west pipeline to the Red Sea played a crucial role as a safety valve for the oil market during the Iran War. Abu Dhabi and Riyadh have increased their exports through these pipelines, diverting millions of barrels per day around Hormuz.
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 Arabia’s pipeline to the Red Sea in April, which reduced flow of 700,000 b/d.
“The problem is not the waterway,” Bob McNally, founder of Rapidan Energy, told CNBC’s “Power Lunch” Monday. “It is that Iran can use weapons to attack the loading facilities, the pumping stations, the end stations, these terminals and the storage units of these pipelines.”
Iran and its Houthi allies in Yemen now threaten to disrupt oil exports across the Red Sea. A senior Houthi politician, Mohammed al-Farah, said earlier this week that the militant group was ready to close the Bab el-Mandeb Strait in coordination with Iran, according to state media.
Tehran has asked the Houthis to close the strait if the United States bombs Iran’s power infrastructure, sources said. Reuters THURSDAY. Bab el-Mandeb connects the Red Sea to the Gulf of Aden and global markets.
Closing the strait would block the entry of millions of barrels of oil per day that the Saudis divert via their pipeline to the Yanbu export terminal on the Red Sea.
“The importance of Yanbu to Saudi Arabia and to the global oil market cannot be underestimated,” said Michelle Wiese Bockmann, senior maritime intelligence analyst at Windward.
