Bousso: The quest of ROI-Gulf Exporters to bypass Hormuz is reshaping the region.

Middle East oil producers will have to face the consequences. The Iran War exposed the dangers in relying solely on one chokepoint to export vital oil and gas. Gulf governments were left with a clear strategy imperative: diversify at all costs. A blockade by Iran of the Strait of Hormuz was long viewed as an "event of doomsday". It would never occur. Experts believed it would take a massive effort from the military and that Tehran wouldn't be willing to stop its exports. These assumptions were 'proven painfully incorrect. Iran used cheap drones and small vessels to impose a nearly airtight blockade, but continued to export its oil.

The result was a global energy crisis that affected the entire region.

The countries lost export revenue and had to close down 11 million barrels of oil per day (bpd), along with refineries and LNG installations.

Washington and Tehran agreed to negotiate an agreement for a permanent ceasefire, but the "Hormuz Genie" can't be put back in the bottle. Future closures now pose a persistent and real risk to the region's economy and its people.

As a consequence, the Gulf countries have become more dependent on alternative routes to export energy, chemicals, and fertilisers.

Pipeline Dreams

Saudi Arabia is the best example of how building pipelines to circumvent Hormuz can be beneficial.

Before the war, Saudi Aramco, the state-owned oil company, diverted?60% (or?60 million barrels) of its oil shipments from the Gulf Coast to Yanbu on the Red Sea. In the 1980s, Saudi Aramco, the state-owned oil company, built the 1,200-kilometre (745 mile) route to protect against such a scenario.

The strategic foresight has paid off.

In April, the International Monetary Fund (IMF) said that it expected Saudi Arabia's economic growth to be 3.1% by 2026. This is just 1.4 percentage point less than its pre-war prediction.

Qatar, on the other hand, has no alternative routes to export its oil and LNG, so its economy could contract by 8.6% this year after growing by 2.8% last year, according to IMF.

Other regional players are taking note.

United Arab Emirates were able to bypass Hormuz in part by using their pipeline to the Fujairah oil terminal located outside the Strait. Fujairah's oil terminal was damaged by Iranian airstrikes, but the UAE still managed to export 1.8 million barrels per day, or roughly half its pre-war production.

Abu Dhabi, who left OPEC last May to pursue a growth strategy that is ambitious, has now accelerated construction of a new pipeline, which will double export capacity through Fujairah before 2027.

Iraq is still in a very unenviable situation. The majority of the country's production is concentrated in southern Iraq, which makes it heavily dependent on Hormuz. Companies and authorities in Iraq are therefore looking at ways to improve and expand the northern export routes via Turkey and Syria. Security and political concerns are still major obstacles.

THE QATARI CONUNDRUM

Qatar and Kuwait are faced with a much more complex problem. Both countries, lacking alternative export routes on their own territory, will be forced to rely upon?neighbors to circumvent Hormuz.

Qatar is the world's largest LNG exporter. For Qatar to gain access to beyond the Strait of Gibraltar, it would have to build a pipeline across the Red Sea or through Saudi Arabia, either via Fujairah, Oman or the UAE. Each option has its own geopolitical and economic complications.

These projects would require the construction of new liquefaction capacity outside the Gulf region, which would drive costs up.

This would leave Qatar heavily reliant on Saudi Arabia and the UAE, countries whose relationship with Doha has been strained in recent times. This poses political and strategic risks, which Qatar has sought to avoid for years.

Kuwait faces a similar dilemma. To develop alternative export routes, it would be necessary to deepen energy integration with Saudi Arabia. This highlights how geography could reshape future regional alliances.

DIVERSIFICATION OVERSEAS

Diversification of the Middle East is not the only response that has gained traction.

Gulf national oil companies have been expanding overseas operations to create a hedge for future disruptions in the region. QatarEnergy (formerly Abu Dhabi National Oil Company) and QatarEnergy have been at the forefront of building international portfolios that include oil, gas, and renewables.

This trend will likely accelerate. Acquiring stakes overseas in upstream assets such as refineries, LNG installations and storage terminals would generate valuable income streams, which are not exposed to Gulf risks. Such investments are a great way to ensure that you can continue to grow and be resilient in a world without the certainty of Hormuz.

The race to diversify will shake up government strategies, reshuffle alliances and redirect investments as Middle East producers start the recovery process. It could, in other words reshape this region for many decades.

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(source: Reuters)