The crisis surrounding the Strait of Hormuz illustrates just how much the war with Iran is not only a military confrontation but also an economic event. This strait is one of the most important chokepoints in the world: About a quarter of the world’s oil and a similar amount of liquefied natural gas pass through it on their way to international markets. When traffic through it is disrupted, it’s not merely a regional disturbance but a shock to the entire global energy market.
However, contrary to the image of the “Gulf states” as a uniform economic bloc, the current crisis exposes structural gaps within the Gulf system. Some countries are actually able to profit from the sharp rise in oil prices, while others are harmed by disruptions to trade routes. For example, Oman enjoys an almost unique geographic advantage in the region. Its main oil ports are located outside the Gulf and therefore are not dependent on passage through the Strait of Hormuz. When traffic in the strait is disrupted and global prices surge, Oman can continue exporting almost uninterrupted—and benefit from the higher market price.
Saudi Arabia is also in a relatively favorable position, although for different reasons. In the 1980s, Riyadh began building the “East–West” oil pipeline, which carries oil from fields in the eastern part of the country to the port of Yanbu on the Red Sea, and from there to eastern markets via Bab el-Mandeb. The pipeline theoretically allows the transfer of about 5 million barrels of oil per day out of the Gulf. This infrastructure is not completely immune to disruption—since the Houthis could affect traffic in Bab el-Mandeb and Iran could target the pipeline itself—but it provides the Saudis with strategic flexibility that most of their neighbors lack. It’s worth noting that both Saudi Arabia and Oman were less affected by Iran during the war in comparison to other Gulf states.
The United Arab Emirates also laid a “Hormuz bypass” pipeline in 2012 (between Abu Dhabi and Fujairah). It has been reported that this pipeline was also damaged during the war (with a capacity of about 1.5 million barrels per day), and its current condition is unclear. Unlike Saudi Arabia and Oman, other Gulf states are almost entirely dependent on passage through the strait; when traffic is disrupted, a significant portion of their oil and gas simply doesn’t reach the market. Even if prices rise, their revenues don’t necessarily increase, because export volumes themselves decline. In fact, these states lose twice: both from a decrease in export volumes and from rising insurance and maritime transport costs.
The crisis surrounding the Strait of Hormuz illustrates just how much the war with Iran is not only a military confrontation but also an economic event. This strait is one of the most important chokepoints in the world: About a quarter of the world’s oil and a similar amount of liquefied natural gas pass through it on their way to international markets. When traffic through it is disrupted, it’s not merely a regional disturbance but a shock to the entire global energy market.
However, contrary to the image of the “Gulf states” as a uniform economic bloc, the current crisis exposes structural gaps within the Gulf system. Some countries are actually able to profit from the sharp rise in oil prices, while others are harmed by disruptions to trade routes. For example, Oman enjoys an almost unique geographic advantage in the region. Its main oil ports are located outside the Gulf and therefore are not dependent on passage through the Strait of Hormuz. When traffic in the strait is disrupted and global prices surge, Oman can continue exporting almost uninterrupted—and benefit from the higher market price.
Saudi Arabia is also in a relatively favorable position, although for different reasons. In the 1980s, Riyadh began building the “East–West” oil pipeline, which carries oil from fields in the eastern part of the country to the port of Yanbu on the Red Sea, and from there to eastern markets via Bab el-Mandeb. The pipeline theoretically allows the transfer of about 5 million barrels of oil per day out of the Gulf. This infrastructure is not completely immune to disruption—since the Houthis could affect traffic in Bab el-Mandeb and Iran could target the pipeline itself—but it provides the Saudis with strategic flexibility that most of their neighbors lack. It’s worth noting that both Saudi Arabia and Oman were less affected by Iran during the war in comparison to other Gulf states.
The United Arab Emirates also laid a “Hormuz bypass” pipeline in 2012 (between Abu Dhabi and Fujairah). It has been reported that this pipeline was also damaged during the war (with a capacity of about 1.5 million barrels per day), and its current condition is unclear. Unlike Saudi Arabia and Oman, other Gulf states are almost entirely dependent on passage through the strait; when traffic is disrupted, a significant portion of their oil and gas simply doesn’t reach the market. Even if prices rise, their revenues don’t necessarily increase, because export volumes themselves decline. In fact, these states lose twice: both from a decrease in export volumes and from rising insurance and maritime transport costs.