Concerns regarding a blockade of the Strait of Hormuz built up in recent months after Iran threatened to close the strategic maritime passage if the EU implements sanctions on Iranian oil imports.  Although tensions have ratcheted down, Iran’s geography means the threat remains. We see now that countries in the region are moving to bypass the choke point of Hormuz by building new infrastructure that would sidestep the strait.

The UAE is nearly finished building a 360-km pipeline that will carry oil from fields in Abu Dhabi to Fujairah in the Gulf of Oman just bypassing the strait. The pipeline will have a predicted capacity of 1.8 million barrels a day, representing most of the UAE’s current production of around 2.5 million barrels a day.

Last week oil minister Ashti Hawrami of the semi-autonomous Iraqi Kurdistan announced plans to build a one-million-barrel-a-day oil pipeline to Ceyhan Turkey, a route that would bypass shipping through the gulf and Baghdad’s control.

Iranian officials (even Iran, the source of the threat to Hormuz is trying to bypass the chokepoint) have recently announced plans to construct infrastructure in the Gulf of Oman. The Iranian Oil Terminals Company (IOTC) plans to build a new oil export terminal at Bandar Jask, 100 miles east of the strait. A pipeline will also be built from the new port to the Caspian Sea port of Neka, providing greater shipping options.

While these three nations have a clear incentive to expand exporting options, their actions may indicate continued  concern in the region about Iran’s threats to block trade through the strait. The Iranian and UAE’s efforts to barely bypass the strait suggest that they want  secure oil trading routes in the event of a blockade. Removing their reliance on the strait, countries are signaling their belief that a shutdown of the passage, and therefore 20% of the world’s oil, is a legitimate possibility. There is very little economic reason for these projects – only strategic. These countries are clearly hedging their bets against future conflict in the region.

Share on Facebook

Tweet