Saudi Arabia Weighs Major East–West Pipeline Expansion as Iran War Reignites Hormuz Risk

Saudi Arabia is exploring a significant expansion of its East–West crude oil pipeline system to the Red Sea as renewed attacks on tankers in the Strait of Hormuz and fresh U.S.–Iran strikes underscore the vulnerability of Gulf export routes. The move could add up to 2 million barrels per day (bpd) of bypass capacity over the medium term, but offers no immediate relief to markets grappling with disrupted flows and heightened war-risk costs. In the near term, crude and product logistics across the Gulf remain exposed to escalating security threats around the key chokepoint.

The Iran war and the effective closure or severe restriction of the Strait of Hormuz since late February have already triggered the largest oil supply disruption in modern history, according to international assessments. In recent days, Iran has resumed missile and drone attacks on commercial shipping, prompting new U.S. airstrikes on Iranian targets and the revocation of Iran’s ability to openly sell crude, further complicating regional export dynamics. Against this backdrop, Riyadh is in preliminary talks with neighboring producers on expanding the kingdom’s Petroline system that carries crude from Abqaiq in the Eastern Province to the Red Sea port of Yanbu, which is already operating at or near its 7 million bpd capacity following recent upgrades.

Immediate Market Impact

With Hormuz effectively constrained and traffic repeatedly disrupted by attacks on merchant vessels, Gulf exports have become more reliant on limited bypass infrastructure and complex routing strategies. Live tracking services show tanker crossings through the strait running far below pre-war norms, with intermittent closures and sharp day‑to‑day declines as security incidents spike. The latest attacks and counter‑strikes have driven a fresh risk premium into freight and insurance costs, while also introducing renewed upside volatility for Brent and Dubai benchmarks after a period of partial price normalization.

Saudi Arabia’s existing East–West system is already a critical shock absorber, allowing several million barrels per day to move overland to Yanbu instead of through Hormuz. However, Kuwait, Bahrain and Qatar still depend almost entirely on the strait for crude and product exports, and Iraq’s northern pipeline route via Turkey remains intermittent. Any future Saudi expansion—potentially coordinated with additional UAE capacity to its Indian Ocean terminal at Fujairah—would gradually re‑balance regional logistics in favor of overland and Red Sea routes, but this will take years and substantial capital.

Supply Chain Disruptions

The immediate logistical picture remains dominated by security-driven interruptions to tanker traffic in and around Hormuz. AIS and ship‑tracking data indicate that crossings are highly erratic, with multiple days of sharply reduced or near‑zero commercial movements as attacks, drone overflights and naval activity intensify. Several tankers have been damaged or forced to reverse course under threat, and operators are facing soaring war‑risk premiums and rerouting costs.

Port operations at Gulf export terminals are subject to intermittent slowdowns as cargoes are rescheduled or diverted, particularly in Iran-adjacent waters and in the northern Gulf. Refinery crude intake in importing regions is increasingly tied to the availability of alternative supplies from the Atlantic Basin, West Africa and the Americas, while some Asian buyers are drawing down inventories and leaning on term suppliers with non‑Hormuz routings. For now, Saudi exports via Yanbu and the UAE’s Fujairah corridor are mitigating the worst of the physical shortfall, but spare bypass capacity is finite.

Commodities Potentially Affected

• Crude oil (Brent, Dubai, Oman blends) – Directly exposed to export bottlenecks through Hormuz; price risk premia and time‑spread volatility likely to increase as security incidents mount.
• Refined products (gasoline, diesel, jet fuel) – Disruptions to Gulf refineries’ export programs and rerouting via longer Atlantic or Red Sea paths may tighten regional balances and widen East–West arbitrage.
• Liquefied petroleum gas (LPG) – Major Gulf LPG exporters rely on Hormuz; supply disruptions or delays could impact Asian petrochemical and residential demand centers.
• Natural gas liquids (NGLs) and condensates – Associated liquids from Gulf gas fields face similar routing constraints, affecting feedstock availability for petrochemical complexes in Asia and Europe.
• Fuel oil and bunkers – Changes in tanker flows and deviation via Cape or Red Sea routes will alter regional bunker demand patterns and pricing, especially in Singapore and Mediterranean hubs.

Regional Trade Implications

In the short term, exporters with established non‑Hormuz routes—Saudi Arabia via Yanbu and the UAE via Fujairah—are relatively advantaged and may gain market share in price‑sensitive or security‑conscious segments, notably in Europe and parts of Asia. Conversely, Kuwait, Bahrain, Qatar and, to a degree, Iraq face greater constraints and may see reduced liftings or steeper discounts to compensate buyers for elevated risk and logistical uncertainty.

Importers in East and South Asia that are structurally reliant on Gulf barrels—China, India, South Korea and Japan—are diversifying purchases toward West African, North Sea, U.S. Gulf Coast and Brazilian grades where possible, albeit at higher freight cost. European refiners, already familiar with Red Sea and Atlantic supply chains since the Ukraine war, may further tilt their crude slate toward non‑Gulf producers and Saudi Red Sea exports.

Longer term, a successful Saudi-led expansion of bypass pipelines, potentially integrating third‑country volumes, would reconfigure regional trade flows by shifting a larger portion of Gulf exports toward Red Sea and Indian Ocean outlets. This could permanently reduce the share of global oil flows transiting Hormuz and increase the strategic weight of Red Sea lanes and Suez‑linked routes in global energy logistics.

Market Outlook

In the coming weeks, crude markets are likely to remain headline‑driven and highly sensitive to further attacks on shipping, changes in military posture around Hormuz, and any progress or breakdown in U.S.–Iran negotiations. Volatility in prompt spreads and freight markets should be expected as traders recalibrate risk and rerouting costs with every new incident.

For medium‑term planning, the prospective expansion of Saudi Arabia’s East–West system and continued build‑out of UAE bypass capacity represent a structural effort to harden regional export resilience. Yet construction lead times, financing requirements and cross‑border coordination mean these projects will not materially alter supply security for several years. Until then, the global oil complex will remain exposed to geopolitical shocks in and around Hormuz, with inventories, diversified sourcing and flexible logistics serving as the main buffers.

CMB Market Insight

The renewed military escalation in and around the Strait of Hormuz has revived acute geopolitical risk in global energy logistics just as markets were starting to adapt to earlier disruptions. Saudi Arabia’s consideration of a major East–West pipeline expansion, alongside the UAE’s bypass strategy, signals a strategic shift in the Gulf away from single‑point dependence on Hormuz.

For commodity market participants, the key takeaway is that while new overland and alternative seaborne routes can, over time, reduce systemic chokepoint risk, they cannot defuse today’s security‑driven volatility. Traders, refiners and shippers will need to manage elevated war‑risk exposure, dynamic rerouting, and shifting regional arbitrage patterns for the foreseeable future, even as long‑horizon infrastructure responses slowly move forward.