Can the world bypass the Strait of Hormuz?

 As the US and Iran wrangle over the question of whether the Strait of Hormuz is or isn’t open, Gulf elites are beginning to contemplate another question: can they bypass the choke point altogether?

“I almost guarantee that somebody is going to try to do that at some point because they’ve realised now that Iran holds a knife to their throat,” says Joe DeLaura, a Rabobank analyst.

Iran has all but halted tanker traffic through the Strait of Hormuz since the US-Israeli strikes on the country began, sealing a fifth of the world’s oil and gas supply inside the Gulf.

A tentative ceasefire suggests the strait could now be reopened, but both the US and Iranians are suggesting those who pass through it will now have to pay a toll. Some ships are said to have paid $2m (£1.5m).

This is an unpalatable proposition for Gulf states wary of funding Iran’s rearmament and for shipping companies that may find themselves inadvertently funding terror.

At the same time, the conflict has exposed just how easily Iran could shut the waterway and plunge the region back into chaos.

Rather than accept this outcome, regional powers are exploring alternatives.

Badr Jafar, the United Arab Emirates’ special envoy for business and philanthropy, declared this week that “a 50-year-old trade and infrastructure model is being redrawn in weeks”.

“I have spent the past month in discussions with hundreds of business leaders and senior Gulf government officials on the crisis and what comes after it,” he wrote in the Financial Times.

“The conversation has already shifted from managing the immediate crisis to redesigning the systems that created this vulnerability in the first place.”

This isn’t the first time the Gulf has sought to escape the Iran-Hormuz stranglehold.

In the late 1970s, with the Middle East convulsed by revolution and war, Saudi Arabia’s rulers fretted over their reliance on the Strait of Hormuz to get their oil exports to the world.

They came up with an ambitious plan: a 746-mile cross-country pipeline to bypass this choke point.

It would pump oil from the Saudis’ Abqaiq terminal, on the risky Gulf, to the relative safety of Yanbu Port, on the Red Sea. The East-West Pipeline opened in 1981.

Yet the Saudis’ East-West Pipeline has seldom operated at more than a fraction of its capacity. The Strait of Hormuz was never shut during the Iran-Iraq War of the 1980s and then the Gulf boomed as Asia became its biggest customer.

Suddenly, all that has changed and the previously unheralded pipeline now looks like a stroke of genius.

The East-West Pipeline is a ready-made escape hatch for the stranded oil supplies. Just six weeks ago, it was carrying about 770,000 barrels per day. Now, the figure is almost 10 times that.

The only other way oil can bypass Hormuz is within the United Arab Emirates (UAE). Its 236-mile pipeline, built in 2012 with Chinese backing, links the Habshan field in Abu Dhabi to Fujairah port on the Gulf of Oman.

Up to 1.8 million barrels per day are reportedly flowing through this pipeline now, almost two thirds more than before the Iran war.

The Gulf petrostates are now asking whether building more of these arteries is the way to thwart Iran’s control over their economic lifeblood.

The low-hanging fruit is in the UAE. The country’s oil fields and refineries may lie within the Gulf but Fujairah port is on the opposite coast, beyond the Strait of Hormuz – and the pipeline infrastructure is in place.

“The Emiratis will expand this because they have Fujairah port on the Gulf of Oman. They have a capacity to pump out 1.5 to two million barrels per day now and I’m pretty sure they’re going to double that,” says Henning Gloystein, an energy analyst at Eurasia Group.

Beyond that, though, things start to get complicated.

Before the disruption, some 20 million barrels per day of oil were going through the Strait of Hormuz – more than double what existing pipelines can carry, even if they were in the right place for the likes of Kuwait or Bahrain.

Building out new pipelines to replace volumes lost to the strait would be a long and costly business.

While the Gulf summons images of wide-open deserts, few if any would be laid solely across open sand. The topography of the region is far more complex than that. The two lines of the East-West Pipeline, for example, were bored through the basalt of the Hijaz mountains.

Even simply adding a third East-West line could be a $5bn-plus enterprise. Any pipelines to Oman would also have to cross mountain ranges. Ports would have to be expanded and in some cases retooled.

“It would take years to actually put down that infrastructure and it’s expensive, we’re talking tens of billions of dollars,” Rabobank’s DeLaura says.

Bridget Payne, of Oxford Economics, recently asked participants at an energy conference how long it would take to expand the region’s pipelines.

“The answers were everywhere within the range of ‘you could scale up something in a few months’ to ‘it would take five to 10 years and it wouldn’t be worth it because oil is structurally declining by then’,” she says.

In other words, even though the price of oil is high now, it is expected to decline in the coming years as more and more countries build up renewable power.

However, Payne adds: “This conflict has put all the attention and priority on energy security. In that sort of situation, you can get investment mobilising fairly quickly.”