Middle Eastern oil producers are planning to build new pipelines to reduce their dependence on the Strait of Hormuz, as Iran attacks oil tankers almost daily and disrupts Gulf oil exports by sea.
But analysts said the new pipeline would not eliminate the threat to the region’s energy exports. They said this infrastructure is similarly vulnerable to low-cost asymmetric attacks targeting ships in Hormuz.
The United States is supporting Iraq’s efforts to rebuild an oil pipeline that runs from the northern Iraqi city of Kirkuk through Syria to the Mediterranean Sea, a State Department official told CNBC on Thursday. U.S. companies are expected to play a role in the construction of the pipeline, the official said.
The unrest in Hormuz has hit Iraq, OPEC’s second-largest producer, particularly hard. Iraq mainly exports through the southern port city of Basra, and there are limited alternatives. Production in June was 1.9 million barrels per day, an increase of more than 50% compared to 4.2 million barrels per day in February, before the US and Israel began their war against Iran.
Meanwhile, the United Arab Emirates plans to double its export capacity outside Hormuz with the completion of a second pipeline to the port of Fujairah in the Gulf of Oman. Saudi Arabia is considering expanding its pipeline to the Red Sea by 2 million barrels a day, sources told Reuters last week.
Goldman Sachs analysts said in a note Sunday that these projects are just three of seven pipelines in the Middle East under construction or in the planning stages. Analysts said pipeline capacity in the region could rise to more than 14 million barrels per day by the end of 2028. This is equivalent to more than 60% of the prewar export volume of 23 million barrels per day from the seven Gulf countries.
But Jennifer Lee, a geopolitical analyst at energy consultancy Rystad, said the pipeline was less a replacement for the Strait and more a geopolitical hedge against disruption in Hormuz.
The UAE’s existing West-East pipeline to the Gulf of Oman and Saudi Arabia’s East-West pipeline to the Red Sea served as important relief valves for the oil market during the Iran war. Abu Dhabi and Riyadh are increasing exports through these pipelines, diverting millions of barrels per day around Hormuz.
Lee said Gulf countries need to diversify their export routes as much as possible, but pipelines are vulnerable. Iran attacked a pumping station on Saudi Arabia’s Red Sea pipeline in April, reducing throughput by 700,000 barrels a day.
“The problem isn’t the waterways,” Rapidan Energy founder Bob McNally said Monday on CNBC’s “Power Lunch.” “That means Iran can use weapons to attack loading facilities, pumping stations, terminus 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-Falah, said earlier this week that the militants were prepared to work with Iran to block the Bab el-Mandeb Strait, according to state media.
Sources told Reuters on Thursday that the Iranian government has asked the Houthis to close the strait if the United States bombs Iran’s power infrastructure. Bab el-Mandeb connects the Red Sea with the Gulf of Aden and world markets.
Closing the strait would cut off millions of barrels of oil per day that Saudi Arabia has diverted through pipelines to the Red Sea export terminal in Yanbu.
“The importance of Yanbu to both Saudi Arabia and the global oil market cannot be underestimated,” said Michel Wiese Bockman, senior maritime intelligence analyst at Windward.
