The Daily View: Trading efficiency for security

SUPPLY chains were already being rewired for security long before the Strait of Hormuz closure supercharged the hunt for redundancy and resilience.

But once a chokepoint is shut, even once, the risk of future disruption becomes permanently priced in.

Whatever the timeline for reopening, Hormuz will now cast a long strategic shadow.

What follows is a generational investment cycle in post-Hormuz resilience.

The UAE’s accelerated plan to build a second pipeline from Fujairah — effectively doubling export capacity — is likely only the first of many such projects. For Adnoc, it is a relatively low-cost insurance policy that could bypass Hormuz entirely by 2027.

The UAE is geographically advantaged by having a coast outside the Middle East Gulf, so like Saudi Arabia, so it can bypass Hormuz, which several other Middle East producers can’t.

Saudi Arabia’s decades-old decision to build a bypass pipeline has proved its worth in recent months, helping Aramco maintain flows and softening the blow of a global energy shock. Aramco is now weighing an expansion of export capacity at Yanbu on the Red Sea. Expect more to follow.

The UAE has already signalled that mothballed infrastructure from earlier crises is being reassessed. Road and rail corridors, cross-border electricity grids and water systems that extend beyond today’s networks are all back on the table.

For the UAE this is partly about a future unrestricted by Opec quotas. The pipeline project provides more long-term certainty that that production can reach markets.

A new UAE pipeline would be modestly bearish for VLCCs, which currently shuttle inefficiently from port to port to fill cargoes. The future likely lies in more Single Buoy Mooring systems.

But the broader question is how to derisk the region itself. Threats from Iran, the Houthis, and instability in Somalia and Sudan show that vulnerabilities extend far beyond Hormuz. And the for the UAE a pipeline does not eliminate risk — it simply diversifies it. Fujairah has been the subject of Iranian attacks too, and the UAE’s existing crude bypass pipeline has seen fluctuating volumes as a result.

Pipeline resilience is not just an Iran-focused strategy. Three proposed Russia-China gas routes could deliver 106bn cu m per year — roughly equivalent in energy terms to China’s entire 2024 LNG import volume of 77m tonnes, or about 1,100 standard cargoes. Rerouting essential commerce away from single chokepoints reduces risk not only for regional economies but for global supply chains, though at the cost of lower seaborne trade volumes.

However, the current crisis ends, governments and companies are now intent on reducing dependence on global chokepoints. Pipelines will be expanded, port capacity built, and diversification, nearshoring, dual sourcing, and inventory buffers scaled up.

Gradually, the global supply system — built for efficiency — will be traded for one built for resilience and security.

Richard Meade
Editor-in-chief, Lloyd’s List

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