Strait of Hormuz: A Global Proxy War in Oil Transit

The standoff between Iran and the US has sent shockwaves through global energy markets, prompting a scramble for alternative routes to bypass the strategically crucial Strait of Hormuz. President Trump’s threat to impose a 20% tariff on cargo passing through the strait has heightened tensions, but it also represents a calculated gamble by Washington to disrupt Tehran’s financial lifeline.

The Gulf states have long been vulnerable to disruption in the Strait of Hormuz. Its vulnerability makes it a prized target for countries seeking to assert their influence. The waterway connects the Persian Gulf to the Arabian Sea and is a critical route for oil exports from Saudi Arabia, Iraq, Kuwait, and Qatar.

Saudi Arabia has emerged as a leader in bypassing Hormuz. It has diverted about 4 million barrels per day through its East-West pipeline, which transports crude across the kingdom from Abqaiq on the eastern Gulf coast to Yanbu on the Red Sea. This move allows Riyadh to maintain exports despite the blockade and has earned plaudits from energy analysts.

However, bypassing Hormuz does not necessarily remove the risk of disruption – it merely shifts it elsewhere. Tankers loading at Yanbu must still navigate through the Bab el-Mandeb Strait, where Houthi attacks could pose another threat to global oil supplies. The complexity of regional dynamics and the challenges of finding durable solutions are underscored by this unintended consequence.

The United Arab Emirates has also been proactive in developing alternative export routes. DP World’s talks with Fujairah officials to build a new port and container terminal represent a significant step towards reducing dependence on the Jebel Ali hub, a prime logistics powerhouse in the Middle East. Ahmed bin Sulayem, CEO of the Dubai Multi Commodities Centre, views this move as both an immediate response to current conditions and a long-term plan for energy diversification.

Despite these efforts, the Gulf states still rely heavily on Hormuz for oil shipments. Kuwait, Iraq, and Qatar retain significant exposure to the waterway, while alternative pipelines cannot absorb all the crude and liquefied natural gas that would be stranded in a prolonged closure. The International Energy Agency estimates that Saudi Arabia and the UAE have only 3.5 million to 5.5 million barrels per day of available capacity on their operational crude pipelines.

As the standoff between Iran and the US continues, global energy markets are bracing for more volatility. Carole Nakhle, CEO of Crystol Energy, notes that the UAE’s swift action in developing alternatives has given it greater bargaining power in any potential deal with Tehran. “The second they reduce their exposure to the Strait of Hormuz,” she observes, “the more bargaining power they will have.”

However, this development also highlights the limits of existing alternatives and the need for sustained investment in regional infrastructure. Adam Posen, president of the Peterson Institute for International Economics, warns that it could take 18 to 24 months for countries to develop enough pipelines, shipping routes, and workarounds to reduce reliance on Hormuz.

The Strait of Hormuz stands as a potent symbol of the tensions between global energy politics and proxy wars. The next chapter in this unfolding drama will likely see further twists and turns – but one thing is clear: control of global energy transit routes has never been more contested.