After Trump introduced a 20 per cent levy on goods transported through the Straits of Hormuz, Gulf oil-producing countries again accelerated their search for alternative export routes. At the same time, rising tensions in the United States and the Islamic Republic of Iran have resurfaced the vulnerability of this critical global energy corridor.

The United Arab Emirates and Saudi Arabia are relying more on infrastructure outside the straits to sustain the export of crude oil. Reports indicate that the United Arab Emirates is studying the construction of a new port and container terminal in Fujairah on the east coast, with the aim of bypassing the Strait of Hormuz and reducing reliance on the port of Jebel Ali. The British Financial Times quoted sources who claimed that the Dubai port operator, DP World, was consulting on the project. CNBC contacted the company without comment.

The United Arab Emirates promotes off-shore exports

The Chief Executive Officer of the Dubai Multi-Commodity Centre, Ahmed bin Sulayem, stated that the construction of new ports and terminals outside the Strait was both an immediate response and a medium- and long-term arrangement. He claims that pending an improvement in the security situation in the Strait of Hormuz, shipping companies may have limited interest in the waterway.

In addition to port construction, analysts claim that the United Arab Emirates is using tankers for the trans-shipment of crude oil from the Strait to the sea off the Strait, then to larger vessels for transport to the Asian market. The objective of this approach is, first, to maintain the sale of crude oil in the United Arab Emirates and, secondly, to continue to supply to needy Asian buyers.

Saudi Arabia has moved more to the Red Sea.

Saudi stuff is going to the oil system Petroline, which is about 750 miles long, connecting Abu Gheg to the Red Sea port of Yanbu in the east. Following the expansion, the total capacity of the design was approximately 7 million barrels per day.

According to the data provided by Lipow, Saudi Arabia has now converted approximately 4 million barrels of crude oil per day from this to the pipeline to the Yenbu, and from tankers to the Red Sea. According to Bob McNally, President of Rapid Energy Group, Saudi Arabia was able to shift more crude oil to this route as a positive development in recent supply adjustments.

  • Petroline design power is about 7 million barrels per day.
  • The current scale of Saudi diversion is about 4 million barrels per day.
  • The Gulf oil-producing countries around Holmuz are mainly Saudi Arabia and the United Arab Emirates.

Risk hasn't gone away.

However, the circumvention of Hormuz does not mean that the geo-risk disappears, but is diverted to other shipping lanes. Oil tankers carrying long-mounted vessels still need to cross the Red Sea and through the Mande Strait. The market is concerned that an attack by Yemeni Al-Houthi forces on the route could threaten another key sea route.

According to the International Energy Agency, only Saudi Arabia and the United Arab Emirates currently have a functioning crude oil pipeline that can bypass Hormuz, with an estimated capacity of between 3.5 and 5.5 million barrels per day. In contrast, most oil exports from Iraq, Kuwait, Qatar, Bahrain and Iran remain highly dependent on the Strait of Hormuz.

The analysts pointed out that Saudi Arabia, Kuwait and Iraq might eventually be forced to reverse the recent increase in production if the straits were disturbed for a long time and if empty tankers were unable to reach the export terminal. Adam Posen, Director of the Peterson Institute for International Economics, also indicated that it might take between 18 and 24 months to establish adequate alternative pipelines, shipping routes and other export programmes.