Gulf states race to pipeline oil around Hormuz, Goldman Sachs finds. Could insulate most Gulf oil exports.
The Goldman analysis reframes Hormuz risk as a multi-year fade rather than a near-term relief valve, meaning the current geopolitical premium in Brent and WTI is unlikely to unwind quickly even as bypass capacity expands. With roughly 23 million barrels a day of pre-war Gulf exports still tied to the Strait today, the near-term price impact of any disruption remains largely unchanged, keeping the risk premium intact through this year and next. Longer dated Brent pricing may prove more sensitive to the buildout, since Goldman’s own $76 three-year Brent assumption is flagged as carrying downside risk as bypass capacity comes online. Qatar’s LNG exposure, which lacks a pipeline alternative, stands out as a residual structural vulnerability that the broader bypass trend does not address.
ps. The graphic above is via Axios.
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The Gulf isn’t waiting on Hormuz, it’s building around it.
Summary:
- Goldman Sachs tracked seven pipeline and export infrastructure projects under construction, planned or considered feasible across the Gulf
- The bank’s base case sees more than 45% of pre-war Gulf oil exports insulated from Hormuz disruption by the end of 2027, rising above 60% by the end of 2028
- Effective bypass pipeline capacity is projected to rise by 3.8 million barrels a day by end-2027 and by a cumulative 7.3 million barrels a day by end-2028, taking total bypass capacity above 14 million barrels a day
- In a faster construction scenario, as much as 75% of volumes could bypass Hormuz by end-2028
- Two projects are already under construction, the West-East pipeline in the UAE and the Basra-Haditha pipeline in Iraq, with the UAE project nearly 50% complete and due in 2027
- A Dubai-based port operator is in talks to develop a new port on the UAE coast to cut reliance on the Strait
- Roughly 23 million barrels a day of pre-war exports from seven Gulf producers remain tied to the Strait today, meaning near-term disruption risk is largely unchanged
- Goldman’s analyst said the recent rise in oil prices underscores how important Hormuz cargo flows remain to prices in the short term, even as the bank’s medium-term Brent forecast carries downside risk from the pipeline buildout
Gulf oil producers are moving to reduce their dependence on the Strait of Hormuz well before any resolution to the conflict between the United States and Iran, according to a recent note from Goldman Sachs. Commodity analysts at the bank, led by Alexandra Paulus, tracked seven pipeline and export infrastructure projects across the region that are either under construction, planned or considered potentially feasible, and concluded that the buildout could materially reduce the share of Gulf exports exposed to any future Hormuz disruption.
In its base case, Goldman estimates that more than 45% of pre-war Gulf oil exports could be insulated from Hormuz risk by the end of 2027, with that share rising above 60% by the end of 2028. The bank’s forecast assumes effective bypass pipeline capacity increasing by 3.8 million barrels a day by end-2027 and by a cumulative 7.3 million barrels a day by end-2028, which would take total effective bypass capacity to more than 14 million barrels a day. Goldman based the estimate on a median construction period of around two and a half years, noting that disruption driven projects tend to move faster. In a more aggressive construction scenario, the bank said as much as 75% of volumes could bypass the Strait by the end of 2028.
Two of the seven projects identified are already under construction: the West-East pipeline in the United Arab Emirates and the Basra-Haditha pipeline in Iraq. The UAE project, due for completion in 2027, is reported to be nearly half finished and would double export capacity from the port of Fujairah on the Gulf of Oman, outside the Strait. Separately, a Dubai-based port operator is reportedly in talks to develop a new port on the UAE coast aimed at further reducing the country’s reliance on Hormuz.
Despite the scale of the planned buildout, Goldman’s analysis makes clear that the shift will not materially change near-term exposure. Roughly 23 million barrels a day of pre-war exports from the seven Gulf producers, Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the UAE and Iran, remain tied to the Strait today, meaning the physical chokepoint risk currently priced into oil markets is largely unaffected by construction still years from completion. Qatar’s liquefied natural gas exports in particular have no pipeline alternative, leaving that flow structurally exposed regardless of how the wider bypass build out progresses.
Paulus noted that the recent rally in crude prices, driven by tanker attacks and renewed US-Iran strikes, shows that Hormuz still commands the front end of the oil curve, and that the market does not need to see a full physical shutdown before adding a risk premium. At the same time, she pointed to the pipeline expansion as a source of downside risk to Goldman’s medium-term Brent assumption, currently set at $76 a barrel over a three-year horizon, suggesting that as bypass capacity comes online through 2027 and 2028, the structural security premium embedded in oil prices may gradually erode even if near-term geopolitical risk remains elevated.
This article was written by Eamonn Sheridan at investinglive.com.