In recent months, the geopolitical landscape surrounding oil exports from the Gulf region has shifted dramatically due to ongoing conflicts. The Strait of Hormuz, a critical passage for oil shipments, has faced increased tensions, particularly following an Iranian attack that resulted in the death of a sailor. This incident prompted India to prohibit its crew members from navigating through the strait, while Japan's Foreign Trade Council declared it a no-go zone for commercial vessels. Prior to these developments, approximately 20 million barrels of oil were transported daily through this vital waterway. The closure of the strait by Iran led to significant disruptions in global oil supply, causing the largest oil shock in history. In response, markets quickly sought alternative routes to mitigate the impact. Various strategies were employed, including the use of 'dark' ships to evade detection and the tapping of oil stockpiles. Additionally, land-based routes became increasingly important, with Saudi Arabia's East-West pipeline and the UAE's Habshan-Fujairah pipeline being utilized more extensively. Kuwait is also in discussions with Saudi Arabia and the UAE to enhance its oil export capabilities through their pipeline systems. As a result of these efforts, the UAE has expedited the construction of its new West-East pipeline, which is already halfway completed and expected to be operational early next year. Furthermore, Saudi Arabia is enhancing its East-West pipeline capacity, while a consortium led by Chevron is exploring the reconstruction of the Kirkuk-Baniyas pipeline, which was damaged during the Iraq war. Turkey has proposed extending the Kirkuk-Ceyhan pipeline to the Iraqi port of Basra, creating another export channel to the Mediterranean that reduces reliance on the Strait of Hormuz. By the end of 2028, it is projected that more than 60% of oil exports could be insulated from the strait, with an accelerated scenario potentially pushing this figure to 75%. Goldman Sachs has indicated that the median construction time for pipeline projects in the region is approximately 2.5 years, with construction often accelerating in response to supply disruptions.
