For over six months, the U.S. and Iran have been at war. As a result, global oil markets continue to fluctuate.
Oil-exporting nations in the region are now making serious plans to build more ports and pipelines that can bypass the Strait of Hormuz, which lies between Oman and conflict-ridden Iran, as traffic there remains severely constrained.
An F-35B Lightening II with Marine Fighter Attack Squadron 121, 3rd Marine Aircraft Wing out of Marine Corps Air Station Yuma, Ariz., stopped at Joint Base Elmendorf-Richardson, Alaska en route to Marine Corps Air Station Iwakuni, Japan, Jan. 12, 2017. The VMFA-121 was the first operational F-35B squadron in the Marine Corps, with its relocation to 1st Marine Aircraft Wing at Iwakuni. The F-35B was developed to replace the Marine Corps’ F/A-18 Hornet, AV-8B Harrier and EA- 6B Prowler. The Short Take-off Vertical Landing (STOVL) sensor technology, and electronic warfare systems bring all of the access and lethality capabilities of a fifth-generation fighter, a modern bomber, and an adverse-weather, all-threat environment air support platform. U.S Air Force Photo by Staff Sgt. Mike Campbell Joint Base Elmendorf-Richardson, AK, UNITED STATES 01.12.2017
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On Monday, two supertankers moving Saudi crude were hit by missiles while leaving the waterway. Iranian terror proxies have previously carried out similar strikes.
The Liberian-flagged Senegal Prosperity and Saudi-flagged Sidr had loaded some 2 million barrels at the Juaymah terminal in Saudi Arabia.
The tanker attacks followed the first direct exchange of fire between Washington and Tehran since late July.
American forces targeted Iranian launchers on Larak Island over the weekend, saying they were designed to fire rockets with sea mines into the Strait of Hormuz.
Iran hit back by carrying out ballistic missile attacks against U.S. bases in Jordan, prompting President Donald Trump to threaten more strikes.
Crude Prices Increase Again
Brent crude prices climbed by more than 3% on Tuesday to over $93 per barrel. Meanwhile, West Texas Intermediate traded near $88 at the close.
Gulf exporters long accepted the strategic risk of routing this volume of crude via the Strait of Hormuz, as did their customers.
Before the current conflict, approximately one-fifth of oil flows came through the narrow chokepoint.
“If two years ago sports was the big buzz thing,” Gulf states are now far more keen on “ports, ports, ports,” an industry figure told Reuters.
Saudi Arabia can bypass Hormuz through its East-West pipeline, while the United Arab Emirates has its own pipeline linking its oil fields with the port of Fujairah outside the strait.
More bypass capacity is planned. For fuel headed to East Asia, the switch adds weeks to the delivery times buyers initially expected.
UAE Wants Second Fujairah Pipeline
The United Arab Emirates (UAE) is also working on a second pipeline to Fujairah, set to double its export capacity there by 2027.
In May, ADNOC chief executive Sultan Ahmed Al Jaber said that “Too much of the world’s energy still moves through too few chokepoints.”
Saudi Arabia’s East-West crude pipeline is also set to be expanded. It transports oil to the Red Sea coast. Kuwait Petroleum Corp. is also considering access to Saudi and Emirati pipeline systems.
A separately planned Iraqi route would be costly. Its hypothetical pipeline via Syria to the Mediterranean would likely cost at least $15 billion and take years to complete.
Treasury Secretary Scott Bessent was more optimistic about plans to bypass the strait, claiming it could “become irrelevant” within two years.
A Centre for Research on Energy and Clean Air analysis found that fossil-fuel importers were shelling out another $330 billion for seaborne crude oil, refined products and liquefied natural gas (LNG) from March to August.
Crude was responsible for $164.1 billion of that uptick.
CREA said crude averaged $93 a barrel throughout the war.
The pre-war forecast was just $69. “The incident amounted to the largest sustained oil price shock since the 1990 Gulf War,” the think tank claimed.
According to Kpler data, a mere five commodity vessels passed through the waterway on Monday. The recent 10-day average has sat at near 14.
Iran Claims It Could Revive ‘Memorandum’
The Islamic Republic said it could still revive the June ceasefire framework.
Iranian President Masoud Pezeshkian said Tuesday that it would respond if Washington revived the June Memorandum of Understanding that led to a brief ceasefire.
Pezeshkian noted: “If the U.S. returns to its commitments… the Islamic Republic of Iran will immediately reciprocate.”
Other reports, aside from the regime’s public claims, suggest Iran is in fact gearing up for a prolonged confrontation.
The agreement opened a 60-day negotiating window, but the talks ended without a deal.
Ben Cahill, an energy expert at the University of Texas at Austin, told The New York Times, “A lot of people think that the share of oil exports moving through the Strait of Hormuz will never return to prewar levels,” noting that “no country in the world wants to depend so heavily on this shipping chokepoint again.”
About the Author: Georgia Gilholy
Georgia Gilholy is a journalist based in the United Kingdom who has been published in Newsweek, The Times of Israel, and the Spectator. Gilholy writes about international politics, culture, and education.
