Iran's closure of the Strait of Hormuz sparks 'tremendous interest' in alternate routes

The cloture of the sound of Hormuz during the U.S.-Israel state of war with islamic republic of iran has served as wake-up call in that a significant source of the world's oil supply remains dependent on the accessibility of this narrow passageway.

But the choking off of the waterway — and the resulting spike in oil prices — may now also force some serious consideration of oil export alternatives, analysts say.

"I think the risk is now crystallized in everyone's mind. Everyone but Iran is going to want to avoid this situation in the future," said Jim Krane, co-director of the Middle East Energy Roundtable at Rice University's Baker Institute for Public Policy in Texas.

"So, they need workarounds."

With the launch of the war, Iran effectively closed the narrow sea passage that separates the Arabian Peninsula and Iran and connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.

That sent the price of oil skyrocketing. On Friday, withe the announcement that Iran had reopened the strait, oil prices dropped nine per cent to settle at $90.38 U.S. Per barrel. But it's still much higher than the $70 price from before the war.

About 20 per cent of the world’s oil is currently shipped through the strait, which is the primary export route for oil produced by Saudi Arabia, the UAE, Kuwait, Qatar, Iraq, Bahrain and Iran, according to the International Energy Agency.

The agency says that an average of 20 million barrels per day of crude oil and oil products were shipped in 2025.

But options to bypass the strait are limited. Currently, the two main alternatives are pipelines run by Saudi Arabia and the UAE.

There's Saudi Arabia's Abqaiq-Yanbu pipeline system (East-West Crude Pipeline) which crosses Saudi Arabia, connecting Abqaiq to Yanbu on the Red Sea, according to the IAE.

There's also UAE's Abu Dhabi Crude Oil Pipeline (ADCOP) which runs 400 kilometres from onshore oil facilities at Habshan, Abu Dhabi, to the port of Fujairah on the Gulf of Oman.

But Kenneth Medlock, a professor of economics and an expert in global energy at Rice University's Baker Institute, said that the total capacity of both of those routes is just around 8.5 million barrels a day (seven for Saudi Arabia and 1.5 in the UAE)

He said there is come capacity from Iraq to the Eastern Mediterranean through Turkey for about 1.6 million barrels a day, but they lack internal capacity to fully utilize all of it and are flowing only around 300,000 barrels a day.

"We are still short of the capacity needed to fully bypass the Strait," Medlock said. "But there is tremendous interest in alternative routes now."

The impetus to find alternatives has grown "significantly" since the recent bottleneck, with Iran demonstrating it can wield this threat whenever it desires, he said.

He said there will likely be multiple options explored and leveraged now, which could includes expansion of the east-west system across the Arabian Peninsula paired with the expansion of port capacity at Yanbu.

Strait of Hormuz open during U.S.-Iran ceasefire, Trump and Iran's foreign minister say

Others options include expansion of the Kirkuk-Ceyhan pipeline (Iraq through Turkey), Medlock said.

"Some of the options may seem farfetched, but everything is on the table to be explored." 

Krane, who also co-authored a recent working paper on the costs of war for Gulf oil exporters, wrote that several bypass options have been under construction or consideration, including revival of long-abandoned lines that once brought oil to the Mediterranean from Iraq and Saudi Arabia.

Krane said expansion of the Iraqi Pipeline through Saudi Arabia (IPSA), which travels from southern Iraq through Saudi Arabia to the Red Sea port of Mu’ajiz, just north of Yanbu, is another viable option.

"There's a way to expand capacity without actually laying new pipe," he said.

How long it would take to get these alternative routes in shape will depend on the project, Medlock said.

Expanding compression on existing pipelines to move more commodity is the simplest solution, he said, but this is limited by engineering and physics.

The 'dangerous dance' of duelling blockades in Strait of Hormuz

Building new corridors is the most expensive option and will rely on topography and surveys, he added. "In all, we are looking at options that will take anywhere from two to seven years to build."

Medlock said: "The ones that can happen the fastest are the most likely to move forward."

The International Energy Agency also noted that while additional capacity may exist in major pipelines to bypass the Strait, "the logistics and supply chains needed to re-route and export substantial flows have not been robustly tested."

Naji Abi-Aad, COO of Petroleb, an oil company based in Beirut, said that it's also important to note that alternative export pipelines for Gulf oil remain vulnerable and subject to closure and pumping disturbances, especially those crossing more than one border.

When looking at the historical performance of the oil export pipelines in the gulf, every line in the region has been shut down at least once, and most of them remain closed until the present time, he wrote in a recent report for the Gulf Research Center.

"In fact, most of the pipelines crossing state boundaries have fallen victim to the region’s political rivalries and conflicts at one point or another," he wrote.

Senior Reporter

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