Oil prices are about to book yet another weekly gain as the war in the Middle East remains hot, with a pessimistic outlook. Oil exporters from the region are rushing to diversify their export channels, and importers are rushing to diversify their suppliers. The oil market is changing in what may well prove to be an irreversible way.
The Strait of Hormuz is one of the biggest export routes for crude oil—and liquefied gas—in the world. Before the first U.S. and Israeli strikes on Iran, the strait handled close to 20 million barrels daily of crude oil exports from the Gulf States. Now, daily oil flows via the chokepoint are estimated at between 6 and 8 million barrels daily. With LNG, things are even more severe, with Qatar, the region’s largest producer, struggling to export at least some gas amid a force majeure following damage to its Ras Laffan hub as Iran retaliated for U.S. strikes.
Yet there is another oil export route out of the Middle East, and that is the Bab el-Mandeb Strait on the other side of the Arabian Peninsula. Saudi Arabia was quick to take advantage of this fact, reversing the flow along its East-West pipeline to take the oil not to the east, and Hormuz, but to the west, and the port of Yanbu. However, this redirection has had its costs: the port of Yanbu does not have the capacity to handle as much oil as the Persian Gulf ports.
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The UAE redirected its own flows to the port of Fujairah, which sits outside the Strait of Hormuz and as such is less vulnerable to attacks. Yet the UAE also ran into the problem of capacity. ADNOC now plans to double the capacity of the pipeline that carries crude to Fujairah, but this will take until at least next year, per official plans.
Essentially, any oil-exporting state that has alternative routes is exploiting them, and if it does not, it is planning to build some. This will certainly reshape the regional oil export channels, with the Strait of Hormuz potentially losing its significance in the long run. It won’t lose it in the near term because all those alternative export routes take time to build, as noted already.
Importers are also adjusting. The global total energy import bill swelled by $330 billion over the six months between March and August from what it was expected to be, Finland-based climate outlet CREA reported last month. In other words, the war between the United States and Israel, and Iran, had caused a rise in oil and gas prices that added a combined $330 billion to the price tag of these imports—and prices are rising further as it dawns on persistently optimistic traders that TruthSocial posts by President Trump cannot change the course of the war.
