The blockading of the Strait of Hormuz was something that was never going to happen—until it did, paralyzing a fifth of global LNG and crude oil flows and causing quite a bit of economic pain to both producers and consumers of energy commodities. Now, they are taking care to never let a disruption of that scale happen again.

The most immediate response to Iran’s closure of the strait was switching to alternative pipeline routes for those that had them. Saudi Arabia demonstrated foresight with its East-West pipeline that it used to reroute its export flows from the Persian Gulf to the Red Sea, ramping up to some 7 million barrels of crude daily along the pipe that had previously handled much lower volumes. The only major constraint in that rerouting was the capacity of the loading facilities at Yanbu Port, an issue Aramco will no doubt address soon.

It is worth noting that the risk of Iran closing off the Strait of Hormuz was precisely what made Saudi Arabia decide to build the East-West pipeline in the first place, back in the 1980s, as Reuters’ energy columnist Ron Bousso noted in an overview of alternative oil and gas routes out of the Middle East in the aftermath of the Hormuz crisis.

Meanwhile, its neighbor and former fellow OPEC member, the UAE, will have to build a new pipeline to insulate itself from potential future Hormuz trouble. The country already has one pipeline that ships oil to the port of Fujairah, which sits right outside the Strait of Hormuz, but it now plans to double its capacity with a new pipe, from 1.8 million barrels daily to 3.6 million barrels daily—and it wants to do it fast. The new pipeline is scheduled to be ready by the end of next year. Related: Equinor to Boost Troll Gas Output with $412 Million Subsea Development

Iraq is also trying to boost its pipeline capacity. More than 90% of Iraq's oil exports traditionally move through the Persian Gulf, making the country especially vulnerable to Hormuz disruptions. Exports that averaged more than 3.3 million bpd before the conflict collapsed to a fraction of that level, triggering a sharp decline in government revenues and forcing Baghdad to prioritize domestic energy security over export volumes. Production plummeted from over 4 million barrels daily to barely over 1 million bpd.

Like its neighbor, the UAE, Iraq is looking to ramp up its existing pipeline infrastructure, specifically the Kirkuk-Ceyhan pipeline that handles oil flows from Iraq’s northern fields. The pipeline currently has a capacity of around 200,000 barrels daily, but Baghdad is taking steps to increase this to some 770,000 barrels daily, and wants to do it in months. Then, Iraq is also considering a network of other pipelines to Mediterranean ports in Syria and Jordan as a way of bypassing Hormuz and the risk of future disruptions of tanker traffic there.

There is a separate initiative to build a pipeline network connecting the Middle East’s oil fields to port cities in the Mediterranean, with Turkey and Syria becoming major regional energy export hubs. “The post-Assad stabilization of Syria opens a narrow but historically decisive window to transform the Levant from a theater of energy conflict into a continental energy corridor,” the organization behind the idea, a think tank named the New Lines Institute, said. One could argue that the takeover by former radical militants is perhaps best not described as stabilization, but it appears the people currently in charge of Syria are eager to make money from energy.

“The Four Seas Initiative would deliver four compounding strategic goods: European energy sovereignty from Russian and Iranian dependence; American commercial primacy in the Middle East’s most strategically leveraged infrastructure; Syrian economic reconstruction underwritten by transit revenues; and a durable geopolitical settlement that rewards alignment with the West,” the New Lines Institute also said.

Turkey is already working to turn itself into a regional energy hub, especially in natural gas. The Four Seas Initiative will fit well with that Ankara strategy, which, however, also includes transiting Russian gas. The initiative is seen costing some $10 billion—money that energy exporters would likely consider well spent if they minimize the risk of suffering losses from other countries’ geopolitical decisions.

There are, however, those who face a more uphill battle to secure more independence for their oil and gas exports. Kuwait and Qatar will have to rely on neighboring countries and their pipelines to bypass Hormuz, Reuters’ Bousso wrote in his report, because they lack such infrastructure at home. For Qatar, this is far from perfect due to tensions with the UAE and Saudi Arabia—on which it would have to rely should it want to reduce its dependence on Hormuz.

On the other hand, the risk of a repeat of the Hormuz scenario that was never going to happen is, at the moment, quite slim—unless hostilities resume, that is.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com