How Likely Is It That The Gulf Kingdoms Diversify Their Export Routes After The War Ends?

They now hate Iran for damaging their energy infrastructure and therefore don’t want to indefinitely pay it “petroyuan” as part of the “toll” system that the Islamic Republic is flirting with imposing.

The Financial Times recently reported that “Gulf states consider new pipelines to avoid Strait of Hormuz”. Per their assessment, “In the near term, the most viable options may be to expand the East-West pipeline and also Abu Dhabi’s existing route to Fujairah.” Future plans, however, could include new pipelines to the Arabian, Red, and/or Mediterranean Seas, the last one paralleling the frozen India-Middle East-Europe Economic Corridor (IMEC) but only in the event of an Israeli-Saudi rapprochement.

From the Gulf Kingdoms’ perspective, provided that a US-Iranian deal is reached so that Trump doesn’t carry through on his threat to destroy Iran’s energy infrastructure and thus prompt Iran to carry through on its own threat to destroy the Gulf Kingdoms’, export route diversification is their top priority. Given the existing damage to their energy infrastructure from Iran, which defends this on the basis that the US used their bases and/or airspace for attacking it, they don’t want to pay any so-called “toll” to it.

About that, Iran is flirting with such a system as a form of “reparations”, one which could also lead to the yuan challenging the dollar as the global reserve currency if Tehran demands payment in it for transit. It was recently concluded here that “The US will have lost the Third Gulf War if China can still rely on Iran as a reliable low-cost energy supplier while turning the yuan into a global reserve currency that challenges the petrodollar.” That assessment still stands but with an important caveat.

Trump might end US involvement in the war without reopening the strait after asking those that actually rely upon it to do so instead during his latest national address. In that event, Iran might indeed impose its “toll” system and help launch the “petroyuan” (if the region’s energy infrastructure isn’t destroyed per the sequence that was detailed two paragraphs above), thus leading to the US’ strategic defeat. Nevertheless, if the Gulf Kingdoms eventually stop using the strait, then this would be a pyrrhic victory.

Therefore, one scenario that might unfold and which can’t be ruled out is that the war ends with a “toll” system in place and the birth of the “petroyuan”, but these outcomes are eventually phased out as the Gulf Kingdoms expand existing pipelines away from the strait and later build new ones. While the Financial Times estimated that another East-West pipeline would cost $5 billion while a Mediterranean one might reach $15-20 billion, the overall savings from evading the “toll” system would be worth it.

To be sure, the Gulf Kingdoms are disappointed with the US for not adequately defending their energy infrastructure from Iran’s retaliation so they don’t exactly love the petrodollar anymore, but they now hate Iran after what it’s done to them much more than they dislike the US. For that reason, they’re not expected to indefinitely tolerate its hypothetical “toll” system and “petroyuan” demand, instead truly prioritizing export route diversification after the war (if their energy infrastructure still exists by then).

With this imperative in mind, it can thus be expected that the Gulf Kingdoms will phase out their use of the strait after the war if Iran imposes a “petroyuan” “toll” system upon them. Even without that, they’ve now learned the importance of having alternative export routes, but it’s unclear which ones Bahrain and Qatar will pioneer. Transiting across Saudi Arabia will strengthen Riyadh’s influence over them, but building underwater pipelines to the Kingdom’s Emirati rival would rile Riyadh. Time will tell.