Commentary: The oil pipelines that could decide the Iran war

The strategy appears to have been designed on the fly as the war didn’t go as he planned.

To succeed, Trump needs first for the Saudi-UAE bypass pipelines to make a difference. Second, he needs to end the war in days rather than weeks – or at the very least get some supertankers in and out the Strait of Hormuz in that timeframe. The pipelines are only temporary cushions, nothing else. 

Finally, he needs the region’s oil production, refining and loading facilities to emerge from the war relatively unscathed, allowing for a rapid resumption of exports. All are enormous wagers, now we know the inadequacy of the walk-in-the-park assumptions that Washington made ahead of the war.

DIVERSION AWAY FROM HORMUZ

On Sunday, state-owned Saudi Aramco was simultaneously loading three very large crude carriers, known as VLCCs in the industry, at its Yanbu and Al Muajjiz terminals on the Red Sea. This is clear evidence that it is diverting as much oil as possible away from the Hormuz route. Adnoc, Abu Dhabi’s state producer, was loading another VLCC at Fujairah, outside the strait. The scale of the operation at these three sites is unprecedented.

Will it work? In real terms, adjusted by the cumulative impact of inflation, oil is still well below previous spikes. The US$139-a-barrel reached in March 2022 after Russia invaded Ukraine is about US$157 in today’s money. The US$147.50-a-barrel in July 2008 is equivalent to about US$205 a barrel now. Plus the price impact has been short-lived so far, measured in days, rather than months or quarters.