“From Pipelines to Red Sea Ports” Gulf States Expand Hormuz Bypass Routes, Threatening Iran’s Postwar Reconstruction Funding

Gulf states accelerate efforts to secure oil transport routes bypassing the Strait of Hormuz
Transport routes diversified through pipeline construction and connections to Red Sea ports
Iran’s plan to monetize Hormuz faces setback, imperiling postwar economic reconstruction

Gulf states are moving to secure independent oil transport routes. As uncertainty over passage through the Strait of Hormuz mounts following the outbreak of war with Iran, major oil producers including Saudi Arabia and the United Arab Emirates (UAE) are accelerating the development of bypass infrastructure. The shift could deal a “devastating blow” to Iran’s plan to levy service fees on vessels transiting the strait. With economic pressure intensifying from Western sanctions, soaring inflation, currency depreciation and war-recovery costs, the expansion of alternative Gulf transport networks could significantly erode potential fee revenue.

Gulf States Turn Away From Hormuz

On the 12th local time, The New York Times (NYT) reported that “Gulf states are building or expanding pipelines and other infrastructure that can bypass the Strait of Hormuz,” adding that “although the projects will cost billions of dollars and take years to complete, companies and governments view them as an essential hedge against the region’s growing instability.” Ben Cahill, an energy analyst at the University of Texas at Austin, told NYT, “A lot of people think that the share of oil exports moving through the Strait of Hormuz will never return to prewar levels,” adding that “no country in the world wants to depend so heavily on this shipping chokepoint again.” He assessed that Gulf states have begun assigning greater value to infrastructure resilience and security than to cost efficiency.

Abu Dhabi’s state-owned energy company, Abu Dhabi National Oil Company (ADNOC), recently announced that it was investing $8.2 billion in expanding its gas business while considering the construction of a liquefied natural gas (LNG) export facility on the eastern coast to bypass the Strait of Hormuz. In Fujairah, a UAE port city on the Gulf of Oman, a new crude oil pipeline is under construction alongside the existing pipeline carrying oil from Abu Dhabi’s inland fields. The UAE plans to use the pipeline to more than double its Hormuz-bypass capacity to 3.6 million barrels per day. If implemented, the project would allow most crude produced in inland Abu Dhabi to be exported without passing through the Strait of Hormuz.

Pipeline Projects Gain Momentum

Saudi state oil company Aramco is also accelerating a multibillion-dollar expansion of the East-West Pipeline. Built during the Iran-Iraq War in the 1980s, the 1,201-kilometer (746-mile) pipeline crosses the Arabian Peninsula to the Red Sea port city of Yanbu. Saudi Arabia recently used the pipeline to reroute approximately 7 million barrels of crude per day during the war with Iran and is now working to secure an additional 1 million to 2 million barrels of daily capacity.

Cooperative projects among Gulf states are also gaining momentum. Kuwait is discussing the construction of a new pipeline linking it to the Red Sea with Saudi Arabia and other Arab countries, while Iraq and Jordan are reviving plans for a pipeline capable of transporting up to 1 million barrels of crude per day to the Red Sea port of Aqaba. The war with Iran has injected urgency into infrastructure expansion plans delayed for years. Iraq is also considering rebuilding a damaged pipeline to transport crude from the Kirkuk oil fields to Syria’s Mediterranean coast.

Red Sea Ports Emerge as Logistics Hubs

Saudi Arabia’s Red Sea ports are also serving as key gateways for bypassing the Strait of Hormuz. According to the Financial Times (FT), global shipping companies have recently expanded land-bridge operations in which cargo is first unloaded at Saudi Red Sea ports including Yanbu and King Abdullah Port before being trucked to Gulf destinations such as Dammam in eastern Saudi Arabia, Basra in Iraq and Jebel Ali in the UAE. Saudi Arabia is expanding connectivity among its Red Sea ports in line with this trend. In May, the Saudi Ports Authority announced the launch of the “Red Sea Express,” connecting Jeddah Islamic Port and King Fahad Industrial Port in Yanbu with Egypt’s Ain Sokhna Port and Jordan’s Aqaba Port. The service is designed to carry containers on vessels with capacities of up to 1,100 twenty-foot equivalent units (TEUs).

Experts, however, characterize Red Sea ports as a complementary mechanism that can absorb part of the logistics demand during a Hormuz closure and disperse supply-chain disruption, rather than as a new primary route replacing the strait. The Red Sea itself cannot be regarded as a reliably secure shipping lane. A diplomatic expert said, “Recent Houthi attacks have once again heightened the risks facing vessels in the Red Sea and the Bab el-Mandeb Strait, increasing the probability that cargo routed through Saudi Red Sea ports will encounter another maritime chokepoint.” The expert added, “Saudi Arabia’s Red Sea port strategy should be viewed as a supply-chain diversification initiative that disperses risks previously concentrated in a single strait across ports, overland routes and other maritime corridors, rather than as a solution capable of fully offsetting the Hormuz risk.”

Table 1. Middle Eastern Countries’ Plans to Expand Infrastructure Bypassing the Strait of Hormuz

Iran’s Service-Fee Proposal

The trend poses a severe setback for Iran as it seeks to generate additional revenue from the Strait of Hormuz. According to NYT, Iranian Foreign Ministry spokesman Esmaeil Baghaei said on the 3rd that “Iran and Oman have exchanged maps outlining a shipping route through the Strait of Hormuz,” adding that “we are consulting Oman on a single route allowing two-way passage, rather than two or three separate routes.” Iranian officials told NYT at the time that “vessels transiting the strait will not be charged a toll, but a service fee will be imposed to cover costs related to environmental impact, security and personnel deployment,” adding that “Iran and Oman will divide the service-fee revenue equally.”

At a briefing on the 10th, Baghaei said, “As previously stated, an agreement with Oman on the traffic map is already under way, and we are discussing several technical matters related to a joint statement,” stressing that “the negotiations are proceeding very smoothly and constructively.” He added, “What is clear is that we intend to establish a framework encompassing environmental protection, cooperation in providing maritime services and crime prevention, alongside monitoring safe vessel traffic through the Strait of Hormuz.” He reiterated that “as a general principle, the provision of maritime services should receive corresponding compensation.”

Iran’s Economy Teeters on the Brink

Iran’s proposal is widely interpreted as a strategy to secure funding for postwar reconstruction. According to The Wall Street Journal (WSJ), Iran plans to generate $40 billion annually from Strait of Hormuz service fees, while a proposal to charge 5% to 7% of cargo value has recently entered discussion. If Gulf states expand pipelines and alternative transport networks toward the Red Sea and the Gulf of Oman, the volume of traffic through the Strait of Hormuz could decline, sharply reducing Iran’s service-fee revenue.

Iran’s economy is in desperate need of new revenue sources. The International Monetary Fund (IMF) forecasts that Iran’s real gross domestic product (GDP) will contract by 5.4% this year, while consumer inflation will reach 68.9%. The fiscal deficit is projected at 5.2% of GDP. The World Bank has also estimated that Iran’s GDP already contracted by 2.7% in the 2025–2026 fiscal year. The mounting burden of rebuilding its military could further worsen the outlook. According to an Associated Press analysis of satellite imagery and Iranian military statements, the war damaged a broad range of Iranian military infrastructure, including missile storage sites, production facilities, Islamic Revolutionary Guard Corps bases and air-defense networks. Fiscal spending required to rebuild these military assets will delay the reconstruction of civilian infrastructure and industry.