3 Rules for Assessing Pipeline Bypass Capacity in the Gulf

A senior U.S. official recently declared that the Strait of Hormuz will be irrelevant within two years. Roughly 20 million barrels per day of crude still move through it, along with one-fifth of the world’s liquefied natural gas.

That gap between the political claim and the arithmetic is where investors are currently being asked to make decisions.

The Hormuz crisis has triggered a wave of government-backed pipeline announcements, and they are arriving faster than most people can properly assess them. The language attached to them, “massive realignment,” “irrelevant within 24 months,” runs well ahead of what the concrete and steel can actually deliver on the promised timeline.

Most of these projects will not do what the headlines suggest, at least not soon. But you need a way to tell the difference between a project that changes the strategic calculus and one that is primarily a press release.

What follows is a practical framework built around three tests you can apply to any pipeline announcement you encounter, so you stop relying on headline capacity figures and official optimism.

Why the Strait of Hormuz is still the world’s most consequential energy chokepoint

Start with the baseline, because every bypass claim has to be measured against it. Approximately 20 mb/d of crude oil transits the strait, alongside just over 112 billion cubic metres (bcm) of LNG in 2025, which represents roughly 19-20% of global LNG trade.

That is the volume bypass infrastructure is being asked to replace. Hold that number in mind, because a percentage reduction in exposure always sounds more impressive in a headline than it looks against the full scale.

The crude figure is the one that gets the attention. The LNG figure is the one you should worry about more.

The LNG figure is the one you should worry about more because the LNG supply disruption risk operates through a completely different mechanism than crude: there is no partial bypass, no overland alternative, and no comparable volume of liquefaction capacity positioned outside the strait.

Here is the structural difference:

• Crude oil: Partial bypass options exist. Saudi Arabia and the UAE have operational overland pipelines that can redirect a meaningful share of crude away from the strait.
• LNG: No scalable bypass is currently operational. The entirety of Qatar and the UAE’s LNG exports, excluding minor deliveries to neighbours, must pass through Hormuz.

Just over 112 bcm of LNG moved through the Strait of Hormuz in 2025. There is currently no route of comparable scale to carry it any other way.

This is the exposure most investors underweight. Crude has escape valves; LNG does not. If you hold positions in LNG-dependent utilities, industrial feedstock importers, or anything sensitive to Asian spot gas prices, treat the strait’s LNG vulnerability as a distinct and currently unbypassed risk, separate from the crude story entirely.

Iran’s leverage rests on all of this, and it works through threat rather than action. Iran has never needed to sink a vessel; the credible possibility of an attack is enough to deter commercial shipping and drive up insurance costs.

That distinction matters for how you read the situation. Iran does not need to close the strait to extract concessions. It only needs to keep the threat believable, which means bypass capacity has to do more than redirect barrels. It has to shrink the threat itself.

Rule one: the port at the end of the pipe sets the ceiling, not the pipeline itself

A pipeline’s rated capacity is a throughput specification. It is not an export guarantee.

The reason is simple: the marine terminal at the destination is an independent constraint. A pipeline cannot move oil onto ships any faster than the port can load them, and no headline capacity figure accounts for that.

Reading the Petroline numbers as a worked example

Take Saudi Arabia’s Petroline, the East-West Pipeline, which was restored to its full 7 mb/d rated capacity during the March 2026 Hormuz crisis. That 7 is the number you see in the coverage.

The Petroline restoration to full 7 mb/d rated capacity during the March 2026 crisis was widely reported as a strategic milestone, but the port arithmetic at Yanbu had not changed, meaning the throughput ceiling the pipe was running against was the same one that existed before the upgrade.

Now strip it down. Its terminus at the Red Sea port of Yanbu has a nominal combined loading capacity of about 4.5 mb/d, and operationally tested effective capacity sits closer to 4 mb/d. The pipe can push more than the port can load.

Then subtract what never reaches the export terminal at all. Saudi refineries on the Red Sea coast consume roughly 1.8 mb/d of Petroline throughput before it gets there.

Work the arithmetic: 7 mb/d rated, but with a port ceiling of about 4 mb/d and 1.8 mb/d of domestic consumption reducing what reaches export, the headline figure materially overstates deliverable bypass capacity. A 7 becomes considerably less in practice.

Even that assumes full utilisation and no marine delays, no waiting on berths, no offshore lightering to fully load Very Large Crude Carriers, no draft limits biting. This is not unique to Saudi Arabia. Canada’s Trans Mountain expansion was designed for a high number of monthly tanker movements, yet analysts expect significantly fewer because of pilot availability and transit rules.

Across the Gulf, rated nameplate bypass capacity totals roughly 8.5-8.8 mb/d, but effective available capacity is estimated at just 3.5-5.5 mb/d. When you see a pipeline capacity headline, your first question is not “how big is the pipe?” It is “what is the port’s tested loading rate, and what else consumes the throughput first?” Every announcement requires you to find its equivalent Yanbu number before you accept the figure.

Rule two: every border the pipeline crosses multiplies political risk, it does not add it

During the Iran-Iraq War, Iraq built a 1,650-km pipeline across Saudi territory, capable of moving 1.6 mb/d to the Red Sea, specifically to protect its exports from the conflict. It was a genuine bypass solution, built at multibillion-dollar cost, and it worked.

Then Iraq invaded Kuwait in 1990. Saudi Arabia shut the pipeline down, assumed ownership, and the asset has sat largely idle for more than three decades since.

Built at multibillion-dollar cost as a functioning bypass, seized through a third party’s political decision, and left unused for over thirty years. The engineering was never the problem.

That is the principle in one story. Single-country infrastructure is durable because no external government can revoke transit rights. Every additional border the pipeline crosses adds a veto point that a third party can exercise, entirely outside the pipeline owner’s control.

This is why Saudi Arabia’s Petroline and the UAE’s ADCOP are structurally more resilient than anything routed through multiple sovereigns. They answer to one government each. Iraq’s current corridor projects do not, and the failure modes are specific:

1. Basra-Aqaba and Kirkuk-Baniyas corridors face Syrian sanctions and territorial fragmentation, meaning routes can be blocked by conflicts the pipeline owner has no say in.
2. The Basra-Haditha pipeline, at 685 km and up to 2.5 mb/d, carries branches to Turkey, Syria, and Jordan, with total costs of $4.6-5 billion, and each branch introduces a separate government’s political risk.
3. Iraq’s third offshore export pipeline from Basra, at 2.4 mb/d and targeted for completion by end of 2027, stays within Iraqi waters and therefore carries fewer external veto points than the cross-border routes.

For any multi-sovereign project, the number of governments named in the announcement is a direct proxy for the probability that an event outside the owner’s control renders the asset non-operational. Count the borders, then adjust your timeline and completion probability downward accordingly. Border count turns a vague qualifier, “subject to geopolitical conditions,” into a countable variable you can compare across projects.

Why pipeline announcements look like strategy but the math of what remains still exposed tells the real story

The strategic impact of bypass infrastructure is not measured by the volume it redirects. It is measured by what remains exposed after it runs at full capacity.

That is a different question, and it changes the answer. Expert opinion splits into three camps:

• Optimistic (Goldman Sachs): Up to 45-60% of pre-war Persian Gulf exports, roughly 7.3 mb/d, could be diverted to strait-proof routes by the end of 2027 or 2028, materially weakening Iran’s leverage.
• Conservative (IEA, Control Risks): Even if 50% of crude finds alternative routes, a closure still traps residual oil and 20% of global LNG supply, so leverage is reduced but remains structural.
• Self-constrained: Iran’s leverage is limited by economic self-harm, as closure is reported to cost it 70-80% of oil revenue (a figure the underlying research flags as unverified).

Building this capacity out is estimated to require $30-48 billion across the Gulf, which traders expect to push up sovereign borrowing. History suggests crisis-driven infrastructure often endures: Europe’s LNG import terminals built during the 2022 gas crisis achieved high utilisation, while the Baku-Tbilisi-Ceyhan pipeline completed and lasted but now runs underutilised against cheaper competition.

The LNG gap that bypass pipelines cannot currently address

Here is the exposure the crude arithmetic never touches. There are no scalable alternative LNG export routes for Qatar or the UAE currently operational or under construction.

Oman’s Qalhat LNG plant on the Arabian Sea sits outside the strait and provides genuine bypass, but at volumes far too small to change the calculus.

So even in the optimistic scenario where half of crude finds new routes, the entirety of Qatari and UAE LNG remains structurally trapped. A closure would still deliver a severe shock to Asian spot prices and, through them, to global inflation.

Qatari LNG exposure is not reducible by crude bypass projects because the two commodities move through entirely separate infrastructure chains; adding pipeline capacity for oil does nothing to protect an Asian utility holding long-term Qatari supply contracts from the same closure scenario.

The question to ask is precise: what percentage of the energy flow you are exposed to remains on the wrong side of the bypass? If your answer includes LNG in Asia-Pacific supply chains, the crude announcements do not reduce that exposure by a single barrel, regardless of how much pipeline capacity gets added.

Putting the three rules to work on a live announcement

Now run an announcement through all three filters in sequence. Iraq’s Basra-Haditha corridor is a useful live test case: 685 km, up to 2.5 mb/d, branches to Turkey, Syria, and Jordan, $4.6-5 billion total cost, and construction already begun.

Here is the checklist to apply, in order:

1. What is the port’s tested loading rate at the terminus, and what domestic consumption reduces it before export?
2. How many borders does this route cross, and which governments hold veto rights over it?
3. What percentage of your total exposure remains on the wrong side of the bypass even at full capacity?

Run through those three, and your conclusion is specific rather than vague. Basra-Haditha is a genuine infrastructure project with real strategic value, but its multi-country routing, unproven port capacity at the terminus, and inability to touch LNG mean it does not materially move the global risk premium on a Hormuz closure within any near-term horizon.

Current effective bypass capacity sits at 3.5-5.5 mb/d against roughly 20 mb/d of throughput, which is only about 17-27% coverage. Experts cite 50% crude bypass as the threshold at which a closure shifts from catastrophic to manageable, and current or near-term crude projects do not reach it. Apply this sequence in real time and you will consistently land on more accurate assessments than a consensus shaped by official optimism and headline throughput.

What comes next for investors tracking Gulf energy infrastructure

The framework does not change. The infrastructure does, so the useful question is which signals tell you whether bypass capacity is actually approaching the threshold that would compress the risk premium.

Watch these three:

• Port investment at Red Sea and Arabian Sea terminals: A positive signal is expanded, tested loading capacity at Yanbu and Fujairah, because pipelines without port upgrades add rated capacity you cannot use.
• LNG bypass development: A positive signal is any scalable alternative export route for Qatari or UAE gas breaking ground, because its continued absence keeps the most exposed category fully trapped.
• Political durability of multi-sovereign routes: A positive signal is cross-border corridors surviving construction without a transit government exercising a veto, because that is where stranding risk concentrates.

History cuts both ways here. Crisis-driven infrastructure that outlasts its trigger is the norm: the 1973 embargo drove decades of Alaska and North Sea output, and the 2022 European gas crisis built durable LNG import terminals. Yet the idle Iraq-Saudi pipeline, and the underutilised BTC line, show that completed assets can still be stranded by geopolitics or cost.

Your practical posture stays constant. Keep running each new announcement through the three rules; the specific projects will change, but the tests that separate strategic infrastructure from press releases will not.

For investors tracking which upstream and downstream positions are most exposed to a closure scenario, our dedicated guide to oil supply risk vulnerabilities maps the specific asset classes, supply chain dependencies, and price transmission channels that determine portfolio sensitivity to a Hormuz disruption.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions. Financial projections and forward-looking scenarios are speculative, subject to change based on market developments, and past performance does not guarantee future results.