The Strait of Hormuz and Alternative Export Routes

Renewed escalation between the United States and Iran has returned the Strait of Hormuz to the forefront of events in the Arabian Gulf region, underscoring the pivotal position it occupies in the international trade system, particularly the oil and gas trade. The Strait of Hormuz is one of the world's most important strategic maritime corridors, carrying a fifth of global oil and gas exports. This escalation follows the announcement by Iran's Islamic Revolutionary Guard Corps that it was closing the strait completely and barring vessels from crossing it until further notice, met by a US blockade on Iranian ports and ships, compounding pressures on oil and gas supplies and global trade flows.

Successive events following the signing of the memorandum of understanding between Tehran and Washington show that escalation has not ceased in the Strait of Hormuz, which has turned into an arena of pressure and testing between Washington and Tehran. This indicates that the ceasefire has not thus far produced stable rules of navigation, as Iran, despite a meeting in Muscat bringing together the foreign ministers of Iran and Oman to discuss technical details, proceeded to target the Omani shipping lane used by dozens of cargo ships and tankers.

Conversely, the diversion of part of the traffic into the Iranian lane under the pressure of risks threatening the Omani route has placed shipping companies before a difficult equation: either broadcast their course and risk being targeted, conceal their signal and risk losing transparency and insurance cover, or pull back from transiting altogether, leading to slower transport flows, vessel congestion, and delayed arrival of shipments at their destinations, a situation that calls for permanent security arrangements without delay.

Closing the Strait of Hormuz disrupts supply chains well beyond crude oil and liquefied natural gas supplies, extending across broad industrial and commercial sectors. Because energy enters into every stage of production, transport, and storage, any supply shortage or price rise becomes a direct driver of higher costs for shipping, goods, and services.

Any shipping delay can also disrupt production lines, especially in the automotive, electronics, and chemical sectors and other industries that rely on sequential production systems, in which large reserves of raw materials are not held. Markets may likewise face shortages or price increases in petrochemicals, plastic products, industrial materials, and agricultural fertilizers linked to oil and gas.

The immediate repercussions of the renewed escalation are evident in heightened maritime shipping risks, prompting insurance companies under such circumstances to raise premiums, particularly war-risk insurance, on ships and tankers transiting tense areas. Charter rates for oil and gas tankers also climb, alongside rising operational costs tied to the extra time vessels spend reaching their destinations, voyage expenses, and ship protection.

Such risks may prompt some shipping lines to hold back before entering the strait, reduce the number of voyages, or await additional security arrangements, slowing transport traffic, causing vessel congestion, and delaying the arrival of cargoes at their destinations. Indeed, an elevated level of risk alone suffices to raise the cost of global trade, whose real burden falls on end consumers around the world.

Asian countries are the parties most affected by any disruption in the Strait of Hormuz, given the reliance of major economies, such as China, India, Japan, and South Korea, on energy supplies from the Gulf region, driving up the cost of energy and industrial production in those nations.

Against this backdrop, Qatar National Bank (QNB) projected that the fallout from the military escalation between the United States and Iran on Asian economies would persist even after an agreement is reached to end the crisis, noting that a full recovery depends on restoring supply chains and energy reserves and stabilizing prices.

In its weekly report, the bank explained that Asia stands to suffer the most because of its heavy reliance on energy imports passing through the Strait of Hormuz, prompting its governments to adopt exceptional measures, such as drawing down strategic reserves, rationalizing fuel consumption, and restarting coal-fired power plants.

Renewed tension in the Strait of Hormuz therefore makes it imperative to diversify energy export routes and corridors rather than rely on a single maritime passage, whatever its importance and capacity. Against this backdrop, pipelines that bypass the strait take on greater significance, such as Saudi Arabia's East-West pipeline, which carries oil to Red Sea ports, and the Abu Dhabi pipeline running to the port of Fujairah outside the strait, in addition to Egypt's "Sumed" pipeline, which stretches from the Red Sea to Sidi Kerir in Egypt on the Mediterranean. Yet the capacity of these pipelines remains limited compared with the volume of exports passing through Hormuz.

That limitation has prompted Saudi Arabia, according to Reuters citing more than one informed source, to study expanding the capacity of the crude oil pipeline running to its western coast on the Red Sea. Such a step would allow the kingdom, and potentially some of its Gulf neighbors, to export larger volumes of oil reaching up to two million barrels per day without needing to transit the Strait of Hormuz. The United Arab Emirates is likewise seeking to increase the capacity of the pipeline heading to Fujairah in order to strengthen its ability to export oil away from the strait.

This context also highlights the importance of reviving overland pipeline projects that bypass the Gulf region, whether for oil or gas transport, foremost among them the Qatari gas pipeline project to Turkey and Europe via Syria, and even the Iran-Iraq-Syria gas pipeline project known as the "Islamic Friendship Pipeline."

This reality further underscores the importance of reopening the Kirkuk-Tripoli and Kirkuk-Baniyas pipelines, which could provide additional outlets for Iraqi oil to the Mediterranean, grant Iraq broader options for exporting its crude, and ease its reliance on the Turkish route and traditional maritime passages. For Lebanon, reopening the Kirkuk-Tripoli pipeline represents an economic and strategic opportunity, both to reclaim its role as an energy corridor to the Mediterranean and to benefit from transit fees, logistics services, and investments tied to rehabilitating oil infrastructure, particularly the facilities of the Tripoli refinery.

Translated from Arabic with AI. Read it in Arabic