IEA and OPEC split on global oil demand estimates as Strait of Hormuz closure drags

Months of blockades and uncertainty surrounding the Strait of Hormuz have compelled energy exporters to seek alternative shipping routes. Iranian officials insisted the waterway would remain closed until the US complied with a June framework agreement and offered compensation for alleged violations. US President Donald Trump claimed the US Navy controls the Strait of Hormuz after a mine sweep.

The narrow waterway between Iran and Oman is a critical oil shipping route, carrying around 20% of global crude exports from the Persian Gulf. Facing prolonged disruption, Saudi Arabia has successfully redirected substantial volumes away from Hormuz. The UAE, with dedicated ports and pipelines, has had less success. The US-Iran war has heightened the importance of alternative shipping lanes through the Red Sea.

Saudi Arabia redirected crude shipments through the East-West Pipeline from eastern oil fields to the Saudi Red Sea port of Yanbu, bypassing Hormuz entirely. As a result, Saudi cargo shipments fell from 47.5 million tons in April-May 2024 to 6.3 million tons, while exports through the Red Sea increased from 29.6 million to 54.8 million tons, replacing approximately 61% of the volume lost in the Persian Gulf.

However, the UAE is still developing parallel capacity alongside its Abu Dhabi Crude Oil Pipeline (ADCOP), which transports crude from Abu Dhabi to Fujairah on the Gulf of Oman. Fujairah and nearby Khor Fakkan provide deepwater facilities, but war risk has limited their use. Alternative ports in the UAE also experienced a decline in traffic during April and May 2024.

While alternative routes are being explored, such as pipelines connecting Iraq with Oman and Jordan, and longer sea routes around Africa, these projects are costly and time-consuming. Moreover, rerouting ships around the Cape of Good Hope adds significant transport costs. The Red Sea route also poses security risks, with Houthi attacks threatening commercial shipping near Bab al-Mandab.