Saudi Arabia's East-West Pipeline Hits 7 Million Barrels Per Day as Hormuz Closure Enters Fifth Week

Saudi Arabia’s East-West pipeline, which bypasses the Strait of Hormuz, is operating at full capacity of 7 million barrels per day. The pipeline is part of a contingency plan to reroute oil to the Red Sea amid the effective closure of the strait due to the Middle East conflict. This shift is helping to maintain global oil supply and prevent oil price spikes that have historically occurred during similar supply shocks.

Crude oil exports from Saudi Arabia’s Yanbu port on the Red Sea have reached 5 million barrels per day, while the country is also exporting about 700,000 to 900,000 barrels per day of oil products. Of the 7 million barrels that travel through the pipeline, 2 million are destined for Saudi refineries. The Yanbu route partially offsets the hit to supply from the closure of Hormuz, through which about 15 million barrels a day of crude shipments passed before the war.

The conflict in the Gulf, triggered by U.S. and Israeli attacks on Iran, has unsettled energy and transport markets. Iran’s closure of the Strait of Hormuz has trapped roughly a fifth of the world’s oil and liquefied natural gas supplies, sending crude oil surging above $100 a barrel. Flotillas of tankers have redirected to the port of Yanbu to collect oil, providing a critical lifeline for global supply.

What Are the Implications for Oil Prices and Market Stability?

The full utilization of the East-West pipeline has prevented oil prices from reaching the crisis-level highs seen in previous supply shocks. The rerouting of oil to Yanbu is stabilizing the market by ensuring continued exports, even as the Hormuz strait remains effectively closed. However, the bypass is only a partial solution, given that Hormuz previously accounted for 15 million barrels per day of crude shipments.

Market observers are monitoring how long the current rerouting can be sustained and whether oil prices will remain stable. The current situation is also highlighting the fragility of global energy infrastructure and the importance of alternative supply routes. Without a more permanent solution, volatility could return if the conflict in the Gulf escalates further.

What Are the Long-Term Plans to Reduce Dependence on the Strait of Hormuz?

Mike Novogratz, CEO of Galaxy Digital, argues that Iran’s strategic decision to show it can close the Strait of Hormuz is a mistake. "You can only bluff people about the Strait of Hormuz once," he said. This move has prompted Gulf states to accelerate infrastructure development to bypass the chokepoint and reduce dependence on Hormuz.

Saudi Aramco has already taken emergency measures, converting its East-West Pipeline to full 7-million-barrel-per-day capacity. The UAE is also investing in alternative routes, such as the Habshan-Fujairah pipeline, which carries 1.5 million barrels per day. These projects, however, are expensive and time-consuming to build, with the Habshan-Fujairah pipeline costing $4.2 billion and exceeding its budget by nearly $1 billion.

Novogratz expects a massive infrastructure buildout in pipelines and potentially even a canal to bypass the Strait of Hormuz. However, he acknowledges that this will not happen quickly. "It’s not going to be done in 18 months," he said. The full replacement of Hormuz’s 20-million-barrel-per-day throughput would require building several pipelines, export terminals, tank farms, and deep-water loading berths.

What Is the Risk of a Structural Shift in Global Oil Export Routes?

The ongoing conflict has highlighted the strategic risk of relying on a single chokepoint for oil exports. The full capacity of the East-West pipeline is a temporary solution, but it is likely to accelerate long-term efforts to diversify export routes. This could lead to a structural shift in global oil export patterns, reducing reliance on the Strait of Hormuz.

The scale of investment required for a full bypass network is massive, but the cost of inaction is even higher. If the current rerouting continues for an extended period, it could become a permanent shift in how oil is transported from the Gulf to global markets. Investors should monitor developments in infrastructure projects and geopolitical developments in the region, as they could have lasting implications for energy markets.

The current rerouting of oil to Yanbu has provided a critical lifeline for global supply. However, the long-term sustainability of this approach depends on the duration of the conflict and the willingness of Gulf states to invest in alternative infrastructure.