A new pipeline that will bypass the Strait of Hormuz is about 50% complete, with efforts being accelerated to begin flowing crude next year, according to the head of the Abu Dhabi National Oil Company (ADNOC).
ADNOC CEO Sultan Al Jaber, who also serves as the UAE’s minister of industry, said the pipeline will terminate at Fujairah on the Gulf of Oman. Together with an existing 250-mile pipeline to Fujairah that has a capacity of 1.8 million B/D, the new midstream infrastructure would double the volume of crude that the UAE can route outside the Strait of Hormuz.
In an interview with US think tank the Atlantic Council on 20 May, Al Jaber noted that “too much of the world’s energy still moves through too few chokepoints,” adding that upstream investment also remains insufficient. He cited global upstream spending of about $400 billion per year, which he said is only enough to offset natural decline rates.
Al Jaber said that global spare production capacity is about 3 million B/D, compared with an estimated requirement of 5 million B/D. “And in just 2 months, the world drew down around 250 million bbl from storage,” he said. “We have 30 to 35 days of effective cover. We need to at least double that.”
Speaking to the impact of the US–Israeli conflict with Iran, the CEO estimates that more than 1 billion bbl of crude have been removed from the market, with a further 100 million bbl per week stranded while the Strait of Hormuz remains tightly restricted.
Al Jaber said the disruptions are hitting a wide array of commodities and products. In addition to restrictions on crude, liquefied natural gas (LNG), and jet fuel flows, Iran’s control over the Strait of Hormuz is also choking off shipments of fertilizers, aluminum, critical minerals, and other consumer and industrial goods. As a result, he said fuel prices have risen by about 30% on average, fertilizer costs are up 50%, and airfares have increased by about 25%.
Recent independent analysis suggests that around 11 million B/D of crude exports from Gulf Arab states are affected, with regional LNG supplies at risk of prolonged disruption.
The CEO noted that the UAE was targeted by over 3,000 missiles and drones during the height of the conflict and called on Iran to immediately end its efforts to disrupt marine traffic through the strait. Al Jabar also pressed for a global effort to ensure freedom of navigation through the narrow waterway.
Calling the situation a “dangerous precedent,” Al Jaber said, “Once you accept that a single country can hold the world's most important waterway hostage, freedom of navigation as we know it is finished. If we do not defend this principle today, we will spend the next decade defending against the consequences.”
If the strait were to reopen, ADNOC could restore production to pre-war levels within a few weeks. However, Al Jaber said it could take at least 4 months for flows through the waterway to recover to 80% of normal, with a full return not expected until sometime next year.
Amid the tensions, the UAE made headlines last month to leave OPEC, which Al Jabar said was a “strategic decision” that will give the Gulf Arab state a greater ability to invest in and expand its upstream capacity.
“With demand for oil staying well above 100 million B/D into the 2040s, the world needs more of what the UAE produces: the lowest-cost, lowest-carbon barrels out there. And now we will have the flexibility to place more crude with customers everywhere,” he said.