Oil producers seek alternative routes to bypass Strait of Hormuz

As Japan prepares to support Saudi Arabia and the United Arab Emirates in expanding Strait of Hormuz alternative routes for crude oil exports, producers facing even greater logistical challenges — including Iraq, Kuwait and Qatar — may also present unique opportunities.

In July, the U.S. State Department unveiled a plan to refurbish a pipeline linking central Iraq to Baniyas, in Syria. The project would allow Iraqi crude to reach the Mediterranean without passing through the Strait of Hormuz. U.S. oil major Chevron is reportedly taking part in a feasibility study.

Iraq produces more than 4 million barrels of oil per day and is OPEC’s second-largest producer, behind Saudi Arabia. Located at the northern end of the Persian Gulf, the country exports crude from its giant southern oilfields through the Strait of Hormuz.

The Iraq-Syria pipeline has been hostage to geopolitics for decades. Completed in the 1950s, it was shut down in 1982 after relations between the two countries deteriorated. Although it was later partially restored, the pipeline stopped operating again in 2003 during the Iraq War and remained closed for more than two decades because of Syria’s civil war and instability.

On August 24, the United States removed Syria from its list of state sponsors of terrorism, a designation that had been in place for nearly half a century.

Iraq is also studying greater use of an existing pipeline that carries crude from northern fields to Ceyhan, in southern Turkey, as well as a separate proposed route to Aqaba, in southern Jordan.

Kuwait and Qatar face tougher constraints

While Iraq has several options, Kuwait faces a more difficult situation. Unlike Saudi Arabia and the UAE, it does not operate bypass pipelines that allow exports to avoid the Strait of Hormuz.

Kuwait’s oil minister, Tariq Sulaiman Al-Roumi, recently said that as long as the strait remains closed, exports will be zero.

Kuwait is seeking a solution through cooperation with neighboring countries. It is studying the possibility of connecting to Saudi Arabia’s pipeline linking the Persian Gulf to the Red Sea, as well as to the UAE pipeline system that connects the Gulf to export points beyond the strait.

Qatar, whose exports are more focused on natural gas than oil, faces an even more critical situation.

The country hosts the world’s largest liquefied natural gas production complex, and all its exports pass through the Strait of Hormuz. Since the start of the military conflict between the United States and Iran in February, exports have nearly come to a halt, raising concerns over a prolonged disruption in global energy markets.

State-owned QatarEnergy bought U.S. LNG on the spot market in volumes equivalent to 33 tanker cargoes to meet supply commitments with customers in Japan and South Korea, according to Reuters.

With no viable alternative export route, restoring safe navigation through the Strait of Hormuz has become Qatar’s top priority. The country has taken a prominent role in mediation efforts between Washington and Tehran.

Japan sees strategic importance in bypass routes

The UAE has begun expanding its existing pipeline that carries crude from an area near Abu Dhabi to the port of Fujairah, on the Gulf of Oman, outside the Strait of Hormuz. Saudi Arabia, similarly, plans to expand its East-West pipeline, which links the Persian Gulf to the Red Sea.

For Japan, which imports more than 80% of its crude oil from Saudi Arabia and the UAE, those projects carry major strategic importance.

Iraq, Kuwait and Qatar together export about 5 million barrels of oil per day through the Strait of Hormuz, representing roughly one-quarter of the crude that passes through the waterway. Qatar also supplies about 20% of global LNG demand. The longer the disruption lasts, the greater the impact on the world economy.

The three countries also have deep ties with Japan, dating back to their nation-building efforts. Numerous energy and industrial infrastructure projects built by Japanese companies remain in operation in those countries. Helping them address their current difficulties could therefore create an opportunity for Japan.

Alternative routes carry risks

Alternative routes are not a silver bullet. In April, Saudi Arabia’s East-West pipeline was damaged in an Iranian drone attack. The strike should not be overlooked: it precisely hit pumping facilities that maintain pressure in the pipeline.

The UAE’s Port of Fujairah has also been a frequent target of attacks.

Even with those risks, the benefits of alternative routes for maintaining exports and stabilizing energy markets are considerable. For Japan, which depends on the region for more than 90% of its crude oil imports, supporting these efforts makes strategic sense.

The push for Strait of Hormuz alternative routes is therefore becoming more than an emergency response. It is also a test of how quickly major energy exporters and their customers can reduce exposure to one of the world’s most vulnerable maritime chokepoints.

Source: Valor Econômico

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