The Middle East is entering a pipeline-building boom from the Mediterranean to the Red Sea and the Gulf of Oman, as Arab oil producers rush to bypass the Strait of Hormuz, where Iran is fighting to exert its dominance over global energy flows.
Tens of billions of dollars will be spent in the coming years to bypass the chokepoint where the US and Iran are battling for control, experts say. And while the Middle East has a recent history of grandiose infrastructure projects that fizzle out, this time the commitments to rewire the flow of oil are real.
“When we speak to our customers in the region, they say they never want to deal with this again,” Artem Abramov, the deputy head of analysis at Rystad Energy, told Middle East Eye.
The UAE is building a second pipeline to the port of Fujairah to bypass the Strait of Hormuz, doubling its export capacity by 2027.
Meanwhile, Iraq - the second-largest producer in the oil cartel Opec - signed a deal with Syria in July to rehabilitate a pipeline from its northern oil fields to Syria’s Mediterranean coast. MEE was the first to reveal the project and its US backing.
Saudi Arabia’s East-West Pipeline has emerged as the model for the region. It brings crude from the Gulf coast to the kingdom's Red Sea. Riyadh is also eyeing ways to boost its capacity, further diluting its reliance on the Strait of Hormuz.
But the reconfiguring of oil flows is already positioning winners and losers.
The war has effectively cemented Saudi Arabia and the UAE as the region’s main power brokers and most dependable producers, while the vulnerabilities of smaller states like Kuwait and Bahrain have been exposed.
“UAE and Saudi will realise the biggest windfalls from this. Kuwait and Bahrain are the biggest losers,” Gregory Brew, a senior analyst at the Eurasia Group who specialises in energy and Iran, told MEE.
'Kuwait and Bahrain will require transit agreements and potentially revenue-sharing deals with Saudi Arabia and the UAE'
Kuwait was once linked to the Ottoman province of Basra in modern-day Iraq. It sits at the northernmost tip of Hormuz and relies on the waterway for nearly all of its oil exports.
Likewise, Bahrain is an island kingdom whose only land connection to the outside world is a causeway with Saudi Arabia.
In many ways, geography dictates which direction the oil flows. Iraq is a case in point. Around 70 percent of Iraq’s oil exports have historically flowed to Asia, thanks to the country's reliance on the port of Basra that opens up into the Persian Gulf and eventually into the Strait of Hormuz.
A consortium comprising US energy company Chevron, Los Angeles-based TI Capital, and the Syrian-Qatari billionaire al-Khayyat brothers has a plan to rehabilitate a decades-old pipeline Iraq once had to Syria’s port of Baniyas in the Mediterranean.
But if the project is completed, Iraqi oil will likely end up being sold to Europe because the "very large crude carriers" or VLCCs that make oil sales to Asia affordable cannot transit the Suez Canal, and the long journey around Africa would be too expensive, Brew said.
“Iraq wants to tap the Asian market. But with this pipeline they would be sending crude to Europe. The ability to generate considerable revenues from that market is constrained,” he told MEE.
The Gulf oil producers that have emerged stronger are Saudi Arabia and the UAE because their geography allows them to bypass Hormuz and still sell to Asia’s big markets.
The UAE’s oil production hit an all-time high in June, averaging 4.1 million barrels per day.
The UAE has kept exports flowing with maritime transits through Hormuz and exports via a pipeline terminating at Fujairah Port - which sits outside the waterway. The pipeline has a capacity of up to 1.8 million bpd. The UAE plans to double that output with a new pipeline by 2027.
The Abu Dhabi National Oil Company is also mulling a third pipeline that could transport refined petroleum products like jet fuel, gasoline and diesel to Fujairah, the company’s vice president said last month.
