Is Hormuz open? Trump’s toll threat intensifies rush to bypass the Strait altogether

President Donald Trump‘s threat to impose a 20% fee on cargo passing through the Strait of Hormuz and renewed U.S.-Iran tensions have revived the Gulf’s urgent search for oil export alternatives.

From Saudi Arabia’s East-West pipeline to the United Arab Emirates’ export infrastructure outside the strait, Gulf producers are increasingly relying on alternative routes to keep crude moving as attacks and shipping disruptions expose the risks of depending on Hormuz.

The United Arab Emirates is reportedly looking to build a new port and container terminal on its east coast, in a bid to bypass the Strait of Hormuz and reduce dependence on its Jebel Ali hub — the premier logistics powerhouse in the Middle East.

Dubai-based port operator DP World is said to be in talks to develop the port in the coastal area of Fujairah, as well as a new terminal at the existing harbor in the same emirate, the Financial Times reported on Monday, citing unnamed sources familiar with the matter. DP World declined to comment when contacted by CNBC.

Ahmed bin Sulayem, chief executive of the Dubai Multi Commodities Centre, said reports of the UAE looking to build a new port and terminal outside the strait represent both an “immediate action” but “also a medium- and long-term plan.”

“Until conditions in the Strait of Hormuz are safer, as of now, I don’t believe there will be much focus on shipping lines going there,” bin Sulayem told CNBC’s “Squawk Box Asia” on Tuesday.

The latest crisis has shown both the value and the limits of those alternatives. Saudi Arabia has been diverting roughly 4 million barrels a day through its East-West pipeline, according to Andy Lipow, president of Lipow Oil Associates.

Saudi Arabia’s East-West pipeline network, or Petroline, is a roughly 750-mile system that transports crude across Saudi Arabia, connecting Abqaiq on the oil-rich kingdom’s eastern Gulf coast to the port of Yanbu on the Red Sea. The pipeline is estimated to have a total design capacity of 7 million barrels per day, following some recent expansions.

Riyadh has been diverting about four million barrels a day of crude oil from their east-west pipeline over to Yanbu, loading tankers, many of which are going out the Red Sea, data provided by Lipow showed.

Bob McNally, president of Rapidan Energy Group, described Saudi Arabia’s ability to move additional crude through the route as a major success.

“What real master stroke was Saudi Arabia being able to put all that extra oil through the Yanbu pipeline, and it looks like UAE, with the help of the U.S. military, is getting back to pre-war levels. Really quite a positive surprise,” he said on Monday.

Yet bypassing Hormuz does not remove geopolitical risk so much as shift it elsewhere.

Tankers loading at Yanbu must travel through the Red Sea and pass the Bab el-Mandeb Strait, where Houthi attacks could threaten another key maritime corridor. Lipow said any attempt to stop those vessels could remove several million more barrels a day from the market.

The UAE has also been using tankers to shuttle crude from inside the Strait of Hormuz to waters outside the strait, where it can be transferred to larger ships for delivery to Asia, analysts said.

“We do have the United Arab Emirates who have chartered their own tankers to shuttle oil from inside of the Strait to outside of the Strait, where they would lighter that material to other vessels to make the voyage into Asia in order to number one maintain UAE sales, but number two, to get oil into the market to these countries that need it,” Lipow said.

Carole Nakhle, CEO of Crystol Energy, said that the UAE has moved faster than many of its neighbors to develop alternatives, with implications that extend beyond energy security.

“Everybody is looking for a lasting solution, but the UAE has been faster than many countries in the region in terms of announcing alternatives to the Strait of Hormuz,” she noted on Tuesday.

“The second they reduce that kind of exposure to the Strait of Hormuz, the more bargaining power they will have in any potential deal with the Iranians, and that by itself is going to deflate some of the Iranians’ power and influence in the region.”

Still, the Gulf is a long way from reducing the Strait of Hormuz to a secondary route. Kuwait, Iraq and Qatar retain heavy exposure to the waterway, while alternative pipelines cannot absorb all the crude and liquefied natural gas that would be stranded in a prolonged closure.

The International Energy Agency said Saudi Arabia and the UAE are the only Gulf producers with operational crude pipelines capable of bypassing the Strait of Hormuz, with an estimated 3.5 million to 5.5 million barrels a day of available capacity.

Other regional exporters, including Iraq, Kuwait, Qatar, Bahrain and Iran, rely on the waterway for the vast majority of their oil shipments, underscoring the limits of existing alternatives.

Lipow said Saudi Arabia, Kuwait and Iraq could eventually be forced to reverse recent production increases if storage fills and empty tankers cannot reach export terminals.

Building sufficient alternatives will also take time. Adam Posen, president of the Peterson Institute for International Economics, said it could take 18 to 24 months for countries to develop enough pipelines, shipping routes and other workarounds to reduce reliance on the Strait of Hormuz.

“It will take a sustained problem of this sort, another 18 to 24 months before you get the workarounds built, the various pipelines, the alternative shipping, the alternative sources,” Posen said.