Iraq and UAE race to establish alternative oil pipelines

Iraq and the United Arab Emirates are accelerating plans to expand oil pipelines to make up for capacity lost by the closure of the Strait of Hormuz; because new data reveals their absolute dependence on the Persian Gulf.

Last week, the Iraqi cabinet approved plans to accelerate crude exports through the Kurdistan-Türkiye pipeline network; This would more than triple current shipments from 220,000 barrels per day to 770,000 barrels per day.

The route offers an alternative passage via Kurdistan to Türkiye’s Mediterranean port of Ceyhan. When operating at full capacity, it is expected to provide relief to the oil-dependent Iraqi economy, which will contribute 53% to real GDP by 2025, according to the World Bank.

Exclusive data shown to CNBC by economic intelligence provider QuantCube Technology reveals that Iraq’s overall exports have been nearly depleted since the start of the war as a result of its geographic dependence on Hormuz.

QuantCube’s indicator provides an estimate of the weight of cargo ships are carrying by measuring the volume of deadweight tonnage leaving Iraq and UAE ports.

“Iraq is in a much more complicated situation because we know that most, if not all, of its oil passes through Hormuz,” QuantCube senior economist Alan Lemangnen told CNBC in an interview.

Iraq announced at a press conference on May 16 that it exported 10 million barrels of oil through the Strait of Hormuz in April, compared to 93 million barrels before the war.

Meanwhile, Abu Dhabi is accelerating construction of the new West-East pipeline to Fujairah as it also aims to expand its oil export capacity and bypass the Strait of Hormuz crossing point.

The project, which is expected to become operational in 2027, will double the export capacity of Abu Dhabi National Oil Company (ADNOC).

Sheikh Khalid bin Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, called on May 15 for faster delivery of the pipeline to meet growing global energy demand.

The fact that the UAE can still export oil through other terminals mitigates the impact of the Hormuz closure.

“It is clear that Iraq is in a much more complicated situation than the UAE or Saudi Arabia due to its location and its inability to change course,” Lemangnen said. he added.

“The UAE still has the Fujairah terminal. Even if it was damaged during the war, in theory it still has the infrastructure and ships to export large amounts of oil.”

But even existing alternatives are at risk. While Saudi Arabia’s East-West pipeline was attacked by Iran in April, Fujairah was also attacked by Iranian drones, disrupting oil loading operations at the crude oil export terminal.

The IEA says the East-West pipeline, which connects processing facilities near the Persian Gulf to an export hub on the Red Sea and the UAE pipeline to the port of Fujairah, has a total estimated current capacity of 3.5 million to 5.5 million barrels per day (mb/d), although Saudi Arabia said in March that the pipeline was pumping 7 mb/d.

But the flow remains well below the approximately 20 million barrels of oil and petroleum products that passed through the Strait of Hormuz every day before the war.

Developing alternative export routes requires not only major investment in infrastructure but also time. Transnational agreements are often necessary when pipelines pass through more than one region.

Ship transits through Hormuz remain significantly below pre-war levels. Traffic on the sea route fell to the lowest point of the Iran war in May, according to Lloyd’s List.

Ships stranded in the Gulf could face attack from Iranian forces unless they receive Tehran’s approval to sail through a designated route via Hormuz. They may also face US sanctions if they cooperate with Iran.

— CNBC’s Emma Graham, Holly Ellyatt and Spencer Kimball also contributed to this report.