36 In addition, Saudi Arabia and the UAE had already developed contingency plans to bypass Hormuz through strategic pipeline infrastructures, ensuring oil passage even if the Straits are blocked. Saudi Arabia’s East-West pipeline, with a capacity of seven million barrels per day, allows oil shipments directly to the Red Sea, while the UAE maintains a pipeline to Fujairah that is capable of rerouting approximately half its exports directly to the other side of the Strait. Although these solutions are not without complications, as the Saudis would still need to get their oil to Asia – especially China – and thus need to go down the Bab al Mandeb and face the Houthis, they nonetheless provide markets with sufficient assurance. The limited response by the oil markets to the recent Israel-Iran conflict underscores a new reality: geopolitical risk in key energy corridors remains significant, but its capacity to drastically disrupt global markets has diminished Nations lacking such infrastructure, notably Iraq, Kuwait, and Qatar, had already begun to realize the value of alternative export routes that bypass the Strait of Hormuz. For over a decade, Iraq has expressed a desire to build an oil pipeline to the port of Aqaba in Jordan as a means of bypassing the Strait, and it now wants to revive those plans. In addition, Iraq may allow the Kurdish Regional Government in northern Iraq to resume oil exports to the Ceyhan port in Turkey, despite legal disputes that have blocked these exports since 2023. Recently, Qatar has contemplated exploiting the regime change in Syria to build pipelines to the East Mediterranean or to Turkey to achieve the same resilience as the Saudis and the UAE. Although such projects are far from being realized, the recent turmoil is likely to boost voices calling for their advancement. 3. THE ROLE OF CHINA The final factor that calmed the market was the fact that the main causalty of blocking the Strait of Hormuz would be China, Iran’s main ally. China is the primary destination for 45% of the oil transported through the Strait of Hormuz. Roughly 90% of Iranian oil exports goes to China, typically at a discounted rate. It is shipped by ‘shadow fleets’ that go through Oman and/or Malaysia to conceal their Iranian sources. This means that in the event of a blockade, China would be the one to face the most significant disruptions, and would likely pressure Iran to cease such operations. If a disruption were still to occur, China would likely seek alternative suppliers, such as Saudi Arabia, the UAE, and even the United States, which would further hurt Iran’s economy. Consequently, if Iran were to impose a blockade, it would harm its principal ally and show itself to be an unreliable supplier, undermining the move’s strategic rationale. LOOKING FORWARD Looking ahead, China will seek to mitigate its vulnerability to disruptions in the Gulf region by diversifying oil and LNG imports from more stable suppliers – mainly Russia, but also Venezuela and various African nations. One way to achieve this is through the construction of the Power of Siberia 2 pipeline, which would allow Russia to substantially increase its export of dry natural gas to China. An additional consequence of the war is that the logic of regional cooperation in developing alternative land corridors for oil and gas pipelines to bypass the Strait of Hormuz is becoming increasingly attractive. Although the idea of building costly pipelines through other countries is not inherently popular due to the prospect of blackmail by the transit country, the Israel-Iran war may prove that it is a price worth paying for the sake of energy transit security. As such, projects like the India-Middle East-Europe Economic Corridor (IMEEC), which involves Israel, have the potential to transform regional energy logistics by allowing the direct transit of energy from the Gulf to the Mediterranean without passing through the three main maritime bottlenecks: Hormuz, Bab Al Mandeb, and the Suez Canal. However, for such projects to succeed, Israel must prioritize diplomatic normalization with Saudi Arabia, improve relations with Jordan, and find sustainable resolutions to conflicts such as the ongoing war in Gaza. Ultimately, the limited response by the oil markets to the recent Israel-Iran conflict underscores a new reality: geopolitical risk in key energy corridors remains significant, but its capacity to drastically disrupt global markets has diminished, reflecting structural changes in supply dynamics, alternative infrastructures, and geopolitical alliances.
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