UAE and Iraq Invest in Pipelines to Bypass the Strait of Hormuz
Middle Eastern oil-producing countries are seeking to expand pipeline capacity to strengthen alternative transportation routes and bypass Iran’s control over the Strait of Hormuz.
The Abu Dhabi National Oil Company (ADNOC) of the United Arab Emirates plans to begin operating a pipeline connecting its western oil fields to the eastern port of Fujairah, on the Gulf of Oman, in 2027. The country already has a pipeline covering the same route, with a capacity of 1.5 million to 1.8 million barrels per day, and the new pipeline is expected to double that capacity.
For the United Arab Emirates, which left OPEC on May 1, the new pipeline carries significance beyond simply bypassing the strait.
It will allow the country to control its own crude oil production and supply as it seeks to replace Saudi Arabia as the Middle East’s leading oil producer.
The new pipeline is “nearly 50% complete,” ADNOC CEO Sultan Ahmed Al Jaber said on May 20.
Iraq has also recently announced the start of construction on a pipeline with a capacity of 2.5 million barrels per day, connecting Basra in the southeast to Haditha in the west. Exports are planned through multiple routes, including the Jordanian port of Aqaba on the Red Sea and the Syrian port of Baniyas on the Mediterranean Sea.
An existing pipeline linking the Kirkuk oil field in northern Iraq to the Turkish port of Ceyhan is also expected to have its capacity expanded from the current 200,000 barrels per day to around 500,000 barrels per day.
Iraqi exports through the Strait of Hormuz are blocked, and the country’s crude oil production now represents only about 30% of what it was before the start of the war, making the expansion of alternative routes crucial.
The Strait of Hormuz, which in peacetime handles the transportation of approximately 15 million barrels of crude oil per day — representing 20% of global demand — was effectively blocked by Iran after the United States and Israel launched war against the country on February 28 this year.
Saudi Arabia, the Gulf’s largest oil producer, moved quickly to secure alternative routes by increasing the capacity of its pipeline linking eastern oil fields to the Red Sea in the west to a maximum level of 7 million barrels per day. Before the conflict, it transported only around 2 million barrels per day, leaving an excess capacity of 5 million barrels per day that has been utilized since the war began.
Bypassing the Strait of Hormuz with pipelines presents challenges, including volume limitations. Even if the new pipelines in the United Arab Emirates and Iraq begin operations as planned, they would be able to supply only slightly more than 20% of the crude oil that flows through the strait during peacetime.
Even when considering the increased capacity of Saudi Arabia’s pipeline, the amount of oil flowing through these channels would still not be enough to offset the closure of the strait.
New attacks and financial problems are also causes for concern. A Saudi pipeline and an oil facility in Fujairah, United Arab Emirates, were attacked by Iran in April and May, respectively.
Iran claims its control over the Strait of Hormuz extends to Fujairah. Facilities in the United Arab Emirates, whose relations with Iran are particularly tense among Gulf nations, could become targets again.
Iraq faces possible delays in pipeline construction due to financial difficulties. The country has already invested US$1.5 billion but says completion depends on securing additional funding, including financial assistance from the International Monetary Fund (IMF).
The differing interests of Gulf countries also complicate the development of alternative routes. A proposed long-distance pipeline linking Iraq to the port of Duqm in Oman through Saudi Arabia would likely face opposition from the Saudi government, which remains cautious about foreign influence.
The war with Iran has highlighted the risks of relying on specific routes for resource supply. International Energy Agency Executive Director Fatih Birol told CNBC in April that he felt like a “broken record” after years of warning countries about the need to diversify energy supply routes.
Source: Valor Econômico