From time to time, threats are made about closing the Strait of Hormuz by Iran, in an attempt to blackmail other countries, especially the Gulf states. Such sporadic actions could disrupt the passage of oil tankers and merchant ships, disadvantaging not only the interests of regional countries but also those of many others, including those depending on Gulf Arab oil.
It will also affect trade relations between the region and other countries. Although it is difficult to imagine such a measure happening — as it would be met with strong objection from all quarters — the Iranian regime, which is suffering an economic collapse, is looking for ways out of its crises, even though it knows that such a step would be suicidal.
All countries will stand against it, including those with which Iran has good relations and depend on economically, such as China and India. In response, some Gulf States have taken necessary precautions to protect their interests and ensure the security of their exports and imports through strategic steps, particularly those made by the UAE.
Following the extension of the pipeline from Habshan in Abu Dhabi to Fujairah, which has a capacity of 1.5 million barrels per day and represents half of the country’s oil exports, the visit of His Highness Shaikh Mohammad Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces to South Korea will result in a further qualitative shift in this approach.
During Shaikh Mohammad’s visit, the UAE and Korea agreed to establish the world’s largest crude oil storage facility on the Indian Ocean in Fujairah, with a storage capacity of 42 million barrels and costing Dh4.4 billion. The facility will have a high level of protection given that it will be established underground.
This move has strategic objectives and sends a strong message, that the Strait of Hormuz, despite its importance, is no longer an obstacle to the UAE’s oil exports. This huge reservoir, besides the Habshan pipeline, can ensure the continuation of the full flow of UAE’s oil exports to international markets without the need to travel through the Strait of Hormuz.
This in fact constitutes a major addition to the UAE and global energy security and is an achievement for the UAE.
In addition to these factors, the presence of the Habshan-Fujairah line and the storage project will contribute to reducing transport and insurance costs. Pipeline transportation is known for being the cheapest transportation means, and given that oil tankers will avoid entering the Arabian Gulf, the cost of insurance will be reduced. More so considering that the Gulf region is among the high-risk assessed areas, for which insurers impose additional charges.
This can generate significant savings for transport companies. This long-term approach by the UAE could benefit some GCC countries having similar potential. The Saudi pipeline, which supplies Yanbu and industrial facilities with oil, can be expanded to transport oil tankers through the Red Sea. The “Tapline” pipe, extending from Abqaiq in the eastern region of Saudi Arabia to the port of Sidon in southern Lebanon across Jordan and Syria, can be branched out into the ports of these two countries and activated when security guarantees are made available and obstacles that led to its suspension nearly 30 years ago are overcome.
Kuwait can extend some pipelines to Jordan through Saudi or Iraqi territories, which will diversify its oil exports. The UAE, Saudi Arabia and Bahrain, where oil production is growing, can establish a Gulf gas and oil network, extending from UAE ports on the Indian Ocean — Fujairah, Khor Fakkan and Kalba — to Saudi ports on the Red Sea.
This will bring about a paradigm shift and raise security guarantees. The bottom-line is the UAE’s experience in this regard is a model worthy of emulation.