There are a very few strips of water as crucial to global shipping as the Straits of Hormuz. Around 95% of the 18.2m bpd of crude exports from the Middle East in 2011 travelled through the straits. This is equal to 46% of the 37.0m bpd of crude oil traded globally by sea in 2011. These figures demonstrate the impact that a disruption to traffic in the strait could have, and certain countries have begun to respond to address this.
Dodging the Bottleneck
There has historically been a very limited amount of Middle Eastern crude moved by pipeline to export ports outside of the Gulf. In recent years this has included the movement of up to 0.5m bpd of Iraqi crude to the Turkish city of Ceyhan via pipeline as well as the movement of around 0.6m bpd of Saudi crude to Yanbu, illustrated by the Graph of the Month. As a result, historically, no more than 5% of crude exported from the MEG has left the region by a route other than via Hormuz.
However, in July 2012, the UAE opened its 1.5m bpd pipeline connecting Abu Dhabi to Fujairah, in an attempt to reduce its exposure to the Straits of Hormuz. Meanwhile, Saudi Arabia has been testing a converted gas pipeline which could potentially carry up to 1.85m bpd of crude oil from the MEG to Yanbu on the Red Sea coast. They have also discussed refitting a further Iraqi-built pipeline which has not operated since prior to the first Gulf War.
In the Pipeline
If all of the Saudi proposals were implemented, combined with the established pipelines, they would greatly increase the pipeline capacity available to move oil to ports outside the Gulf. In the most extreme scenario, this could theoretically allow almost two-fifths of the region’s crude exports to bypass ports in the MEG entirely.
Enough Infrastructure?
Emirati crude exports (totalling 2.5m bpd in 2012) currently form 15% of traffic through the Hormuz Strait (shown on the pie). However, the recent start-up of the Fujairah pipeline means that it is relatively certain that Emirati crude exports will drop to a smaller proportion.
Less certain, however, is the extent to which Saudi exports could shift to the Red Sea. Although the reactivation of all the available pipelines could more than halve the Saudi share of Hormuz traffic from the current 47%, this assumes that Yanbu and other Red Sea ports would be able to ship such large flows. The berths around Ras Tanura represent the largest tanker loading complex in the world, whereas it would take substantial investment on the Red Sea if Saudi were to fully utilise all of the pipelines shown on the graph.
As such, exports from non-Gulf ports are unlikely to reach the theoretical maximum levels explored here. However, there are clear incentives for MEG countries to reduce their reliance on Hormuz, so some extra trade circumventing the strait is inevitable. This could benefit tanker tonne-miles, since it would add 1,200 miles to the laden voyage for eastbound cargoes of Saudi crude, while the Fujairah pipeline shortens voyages by just 140 miles. Moreover, even if the maximum is unlikely, the pipelines remain a promising hedge against any potential disruption of traffic through the Strait in the future.




















Source: Clarksons