Commercial and residential buildings on the beach in Abu Dhabi, United Arab Emirates. (Vidya Chandramohan/Bloomberg)
key takeaways:
- The UAE unveiled plans to eliminate dependence on the Strait of Hormuz by expanding eastern ports, pipelines and transportation links as shipping has been disrupted by regional tensions.
- The effort reflects the vital role of the strait, which previously carried about 20% of global crude oil and LNG, and the growing economic risks posed by its recent closure.
- Officials said billions of dollars of infrastructure projects are in early planning, feasibility studies are underway and reliance on Gulf ports will continue and better logistics are expected.
As the world awaits the full reopening of the Strait of Hormuz following the signing of the interim peace deal between Iran and the US, the UAE is working on a highly ambitious plan to try to end its dependence on the vital choke point.
“We are moving towards zero Hormuz dependency and regardless of whether it is open or not,” UAE Foreign Trade Minister Thani Al Zeyoudi said in an interview. “It’s going to open and we hope it happens soon, but we’re not going to stop the new plan.”
The effective shutdown of the Strait of Hormuz since the US and Israel began bombing Iran in late February has highlighted the waterway’s vital importance to the global supply of energy and other commodities from fertilizer and helium to aluminium. The UAE already benefits from being able to partially bypass the strait by using an existing pipeline to maintain some crude oil movement through ports on its east coast. The country has also managed to move some oil cargo through Hormuz in recent weeks, with ships kept in the dark to avoid detection.
According to Al Zayoudi, at the heart of the UAE’s plan is a major expansion of the eastern ports of Dibba, Fujairah and Khor Fakkan, which are located just outside the strait on the coast of the Gulf of Oman. The UAE will also build at least one other new port on the same coastline, he said.
It will also be accompanied by significant investment in new pipelines as well as rail and road networks, he said, projects that will improve connections between eastern ports and the country’s oil and gas fields and petroleum facilities.
In addition to the rapid construction of a second pipeline to double the amount of crude oil able to be exported through Fujairah, announced in mid-May, the UAE is considering the construction of a third petroleum pipeline. Al Zeyoudi said the country is exploring more options to ensure exports of petrochemicals, LNG and other energy products.
Although he did not disclose the cost and timeline of these projects, he said they were in the planning stage and would likely require several billion dollars to complete.
“The direction is already there, we are doing a thorough feasibility study to move forward,” he said. “During those difficult times, you always recognize your shortcomings and start working on them.”
About a fifth of the world’s crude and liquefied natural gas flowed through the Strait of Hormuz before the war, and its closure has fueled inflation in the global economy.
Reducing the UAE’s dependence on the strait will not be easy. Pipelines could eventually enable the former OPEC member to ship all or most of its crude and refined oil to eastern ports, but redirecting other commodities such as LNG and aluminum would be difficult.
Furthermore, the UAE is heavily dependent on its Gulf ports such as Jebel Ali – the world’s largest container hub outside Asia – for imports. Moving goods from eastern ports to major cities like Dubai and Abu Dhabi will be more expensive.
Al Zeyoudi said those costs would be mitigated by a major railway expansion and both Jebel Ali and Abu Dhabi’s Khalifa port would remain major redistribution hubs.
The United Arab Emirates currently operates an LNG export terminal inside the Persian Gulf, which the Arab states call the Arabian Gulf. The country is building another project, also within the Gulf, which will more than double its export capacity.
The US-Israeli attack on Iran – which prompted Tehran to attack other Gulf countries – was an unprecedented blow to a nation that has built its economy on free trade and navigation, and has been sheltered from Middle Eastern wars. Iran fired nearly 3,000 drones and ballistic missiles at the UAE, more than any other country. Although most were intercepted, some caused damage to vital energy and port facilities, including Fujairah on the east coast.
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The UAE has partially compensated for the closure of the Strait of Hormuz by increasing cargo imports through Khor Fakkan and oil exports from Fujairah. The existing 1.5 million barrel-per-day link from the oil fields to the latter port proved to be a vital lifeline.
Al Zayoudi said air cargo played a major role in moving many goods – albeit at a much higher cost than by sea. A similar practice of delivering and clearing goods at ports was implemented in countries such as Egypt and India.
Underscoring the importance of the Strait of Hormuz to the country’s economy, the UAE has consistently said Iran should reopen it and allow free passage. Along with the US, Europe and other Gulf countries, it is protesting Iranian claims that the Islamic Republic could charge navigation fees even after the war ends.
The uninterrupted flow of traffic through the Strait of Hormuz is “crucial to advancing security, stability and economic prosperity at both the regional and global levels,” the UAE said in a statement.
