Gulf Nations Find Workarounds to Keep Oil Flowing Amid Iran War

Gulf nations have managed to keep oil flowing through the Iran war by finding alternative routes and using pipeline capacity, but at an increasing cost.

When Iran shut down the Strait of Hormuz at the start of the conflict, some feared that prices would skyrocket and cripple the world economy. However, nearly seven months on, oil prices are expensive but not exorbitant, and analysts say supply is sufficient to meet current global needs.

Saudi Arabia and other Gulf producers quickly found alternative routes when Iran targeted the Strait of Hormuz. They used spare capacity in East-West pipelines that carry oil to their Red Sea port of Yanbu and to Fujairah in the UAE, which skirts the strait.

However, Iranian-backed Houthi rebels in Yemen disrupted the Yanbu workaround in July by declaring a blockade of Saudi oil shipments, threatening the Bab el-Mandeb. In response, the Saudis redirected Asia shipments northwest to the Mediterranean, either through the Suez Canal or via a pipeline across Egypt to another tanker.

Oil is currently trading at around $100 per barrel, which is higher than before the war but not as bad as feared. Analysts estimate that some 6 million barrels of oil per day or more have been passing through the Strait of Hormuz on the US-guided corridor, which is about 40% of pre-war flows.

The workarounds are expensive and may not be sustainable in the long term, but for now, they keep the economy supplied. However, markets are braced for further disruption if Iran targets key oil facilities or disrupts the US route through the Strait of Hormuz.