Countries and Companies Seek to Bypass the Strait of Hormuz

The U.S.-Iran war has highlighted the importance of the Strait of Hormuz, with the oil market's top players seeking to bypass the waterway. According to Bloomberg Intelligence analysts, the war may ultimately be remembered for accelerating global efforts to reduce dependence on the strait. The ceasefire agreement between the U.S. and Iran is unraveling, with President Trump proposing to reinstate a blockade and charge a 20% toll on cargo shipped through the strait.

The threat of a toll, although potentially without legal basis, has given producers an incentive to explore alternative shipment methods. Oil prices have risen, with the price of a barrel of benchmark Brent crude oil reaching $86.57. Commodity analysts at Goldman Sachs have identified seven pipeline and export-infrastructure projects under construction, planned, or considered potentially feasible. These projects could insulate more than 45% of the pre-war level of Persian Gulf producers' exports from potential future Hormuz shocks by the end of next year.

Two projects, the West-East pipeline in the UAE and the Basra-Haditha Pipeline in Iraq, are already under construction. A Dubai-based port operator is in talks to develop a new port on the UAE coast to reduce the country's dependence on the strait. Construction for these pipelines is expected to be relatively quick, with a median completion time of 2.5 years. However, the world still needs the strait, with 7 million to 9 million barrels of crude and refined products per day remaining exposed to its risks even after a rerouting buildout.