Gulf oil exporters weigh working around the workaround

Strait to pay or build a way? Gulf oil exporters are being pushed into a stark choice — pay the toll or play the workaround. What’s shaping up as an effective blockade of Hormuz has turned a geographic constraint into a pricing lever, with Iran signaling that passage depends on coordination — and, in some cases, payment.

Volatility around the strait is the name of the game. After signaling the opening of the Strait of Hormuz on Friday, Iran made a U-turn less than 24 hours later, shutting the waterway again, citing a US breach of the truce by maintaining a blockade on Iranian ports. Tankers have been fired on while attempting to pass, while some were able to transit during the brief reopening window.

Demanding the right to control: Iranian authorities have framed their control as including the right to demand payment for "security, safety, and environmental protection” services. Hormuz remains one of the key lagging and unresolved issues in negotiations.

Rules are on paper, power is at sea: Under the UN Convention on the Law of theSea (pdf), vessels are entitled to unimpeded “transit passage” through straits like Hormuz — constraining a coastal state’s ability to interfere or levy charges. In practice, however, there is no direct enforcement mechanism — leaving any challenge to be pursued through diplomatic pressure or sanctions rather than binding adjudication.

The market is already testing what this could look like. Under a hypothetical structured toll regime charging a flat USD 2 mn per tanker — applied to pre-war volumes of 50 ships per day — annual revenues could approach USD 37 bn, assuming no diversion from the route. In a downside scenario, pricing the toll at USD 1 / bbl and assuming only half of Hormuz’s 20 mn bbl / d is captured would reduce annual revenues to nearly USD 3.7 bn.

The pressure point sits in the long-term bill: Even the low-end scenario compounds into some USD 54 bn in present value over 25 years, discounted using Saudi Arabia’s 10-year borrowing costs (averaged at around 5%) as a benchmark.

The scramble for routes

The backup pipeline hero: Saudi Arabia’s 1.2k-km East-West pipeline to the Red Sea port of Yanbu effectively stepped in to save the day as the Kingdom’s release valve — ramping flows toward its 7 mn bbl / d capacity.

Another backup could come off the bench: Iraq is now reportedly working with Saudi to revive the long-idled pipeline linking Basra to Yanbu, a 1.6k-km route with 1.6 mn bbl / d capacity that has been offline since the 1990s. Estimates suggest that rehabilitating the pipeline would require between USD 2.4-3.9 bn, based on the cost of oil pipelines previously built in the region, and that rehabilitation costs are half of construction costs.

It’s just a partial fix that shifts the chokepoint west: With Yanbu pushing crude to the Red Sea, flows are still being exposed at Bab Al Mandab, where the Houthis pose a risk to shipping — as we’ve seen in the Red Sea scare. It’s the same workaround we keep running back to: rerouting doesn’t remove the risk, it just shifts exposure.

That’s why the real endgame being discussed goes beyond bypassing both chokepoints entirely. “The stalled Mediterranean pipelines are the key to accessing Europe, and a poised Indian Ocean pipeline is the key to accessing Asia. Whoever possesses both has the ability to export to half the world without relying on a single passage,” says Abi Aad, CEO of Petroleb and senior energy advisor at the Gulf Research Center.

The Europe-bound route: The route, which operates via the Mediterranean, is based on rehabilitating the historic Trans-Arabian Pipeline to move crude from Saudi to Jordan, then Syria to Lebanon. It also involves reviving the Kirkuk-Baniyas pipeline from fields in Iraq to the Syrian port — replacing the need for trucking — alongside the Kirkuk-Ceyhan and Basra-Ceyhan pipelines to Turkey. If reactivated, this network could reduce shipping costs to Europe by some 40% compared to the Suez Canal route.

The Asia-bound route: One proposed solution by the Baker Institute (pdf) envisions a twin 56-inch pipeline stretching from southern Iraq through Kuwait and along the Gulf coast, collecting supply from Saudi and the UAE before terminating at the Omani ports of Duqm and Salalah. Capacity could reach 10 mn bbl / d — sending crude directly into the Indian Ocean toward Asian buyers.

Buying the way to the east would be estimated at around USD 55 bn, with construction and pumping stations alone costing some USD 18 bn, with another USD 12 bn in development, USD 7 bn in contingency, USD 8 bn for new export terminals, and USD 10 bn to harden infrastructure with missile defense systems.

Here’s the catch: Somehow, the total cost of building that system roughly matches the present value of 25 years of low-end toll payments to Iran. That’s before factoring in higher toll scenarios — and the strategic value of not having to rely on an adversary.

What the price buys is resilience, not immunity: Gulf pipelines can be hardened — with Patriot batteries to intercept missiles or Sam systems to counter drones — but they can’t be invulnerable. The vulnerability lies in pumping stations, compressor nodes, control systems, and export terminals — all of which are sitting ducks — not the pipe itself. A single strike on a pumping station had cut around 700k bbl / d from Saudi’s East-West line.

The trade-off is moving from chokepoint risk to network risk, with known targets spread across — which makes it harder (pdf) to shutdown completely. The upside is recovery — Saudi restored full pipeline capacity within days — but the downside is persistent vulnerability. The network won’t be built to avoid attacks, but to keep working through them.

Pay now, build later?

This leaves Gulf producers stuck in an uncomfortable middle phase: Even if they greenlight new pipelines for the future, construction timelines could stretch up to seven years, meaning toll payments to Iran are unavoidable in the near term — if the situation doesn’t de-escalate. Exporters may end up financing both their workaround and the system they’re trying to escape.

The signal

Why this matters: It is a test of whether Gulf exporters can keep monetizing hydrocarbons when their main outlet is no longer commercially neutral. Once passage through the strait starts looking like something that can be priced, negotiated, or restricted by an “adversary,” the issue stops being maritime risk and becomes structural exposure — the cost of not building starts to look higher than the cost of building.

“The crisis has made visible what was previously hidden: in an interconnected world, resilience is not a luxury; it is the entry ticket to lasting growth,” Wolfgang Lehmacher, former head of supply chain and transport industries at the World Economic Forum, tells EnterpriseAM.

The next chapter is likely to run on two tracks at once: short-term dependence on available routes and whatever terms will be arranged, while longer-term pipeline ideas move into feasibility studies and cost-sharing talks.

“They [the Gulf and the countries that buy from them] now have a chance to turn a crisis of chokepoints into a project of shared corridors, built not only to move oil and gas, but to lower risk for all,” Lehmacher told us.