16JUL

Gulf producers build around the strait

3 min read

09:39UTC

Kuwait said it would raise production as Iraq's Kirkuk-Ceyhan and Saudi Arabia's Yanbu East-West pipelines moved roughly 9 million barrels a day around Hormuz, against the strait's normal 20 million.

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Key takeaway

Gulf pipelines route about 9 million barrels a day around Hormuz, under half the strait's normal flow.

Kuwait said it would begin increasing production, and Gulf exporters drew on pipeline routes that skirt the strait of Hormuz entirely: Iraq's Kirkuk-Ceyhan line to Turkey's Mediterranean coast and Saudi Arabia's Yanbu East-West line to the Red Sea ¹. Both run crude out to open water without touching the waterway the IRGC has formally declared closed.

The two pipelines carry roughly 9 million barrels a day between them, against the strait's normal 20 million ². Producers can route under half their oil around Iran's leverage, which is why a closure threat still bites even as the workaround keeps prices calm: the alternatives soften the chokepoint without replacing it.

Three Saudi very large crude carriers reactivated their transponders off Oman on 19 June, the first confirmed commercial crossings since the closure declaration ³. Days earlier those same ships had only been positioned near Hormuz, not transiting ; by 22 June they were moving cargo across the closure line itself, turning a structural hedge for Riyadh and Baghdad into a live one.

Deep Analysis

In plain English

While Iran claims to have closed the Strait of Hormuz, Gulf oil producers have been routing crude through two alternative pipelines that avoid it entirely. One runs from Iraq's Kirkuk oilfields north to Turkey's Mediterranean coast; the other crosses Saudi Arabia from east to west, ending at the Red Sea port of Yanbu. Together these carry roughly 9 million barrels a day. The problem is that this is less than half of what normally goes through Hormuz (about 20 million barrels a day). So the world can get some oil out of the Gulf via these pipelines, but not nearly enough to replace what would normally flow through the strait. That is one reason energy prices remain elevated even as they fall from their peak.

What could happen next?

Consequence
The 9 million barrels per day pipeline ceiling means Asian refiners dependent on Gulf crude face a persistent supply gap until the Oman corridor delivers full restoration; Kuwait's production increase partially offsets this but at reduced margin given sub-$80 Brent.
Precedent
Saudi Aramco's resumption of VLCC transits through the Oman corridor, using AIS transparency rather than dark shipping, establishes a Gulf-producer norm for Hormuz reopening: producers will transit when the route is physically safe, regardless of IRGC declaration status.

Source Landscape

This story draws on neutral-leaning sources from Qatar

Qatar

Kuwait's production increase announcement adds barrels precisely when global markets are still absorbing the Hormuz disruption overhang. Kuwait's estimated budgetary breakeven is lower than Saudi Arabia's (roughly $65-70 per barrel), giving it incentive to maximise volume even at $77.54 Brent.

The three Saudi VLCCs that reactivated AIS transponders and transited via the Gulf of Oman on 19 June (advance on represent Saudi Aramco testing the Oman corridor for its own export programme. Saudi crude transit via Oman rather than the standard Hormuz lane bypasses the PGSA insurance mandate and avoids the IRGC-claimed closure zone, but adds one to two days of transit time and Oman anchorage costs to each voyage.

For downstream Asian buyers, the key variable is whether the combined pipeline-plus-Oman-corridor supply is enough to prevent physical shortages. At approximately 9-11 million barrels per day bypass (vs 20 million normal), roughly half the pre-war Gulf export volume is physically accessible. Asian refiners running at 80-90% of their 2025 Gulf-crude intake are not immediately supply-constrained, but they are running at compressed operational margins.

Consensus view: The Oxford Institute for Energy Studies has documented the structural ceiling on Gulf pipeline bypass capacity in prior Hormuz-risk analyses: Kirkuk-Ceyhan's roughly 600,000-700,000 barrels per day (damaged and intermittent since 2023 PKK attacks on Turkish territory) and Saudi Arabia's Yanbu East-West Pipeline at roughly 5 million barrels per day design capacity combine to approximately 9 million barrels per day at best, against Hormuz's normal 20 million barrels per day.

This 45% ceiling is a structural fact, not a temporary constraint.

Counter-view: The Energy Policy Research Foundation (EPRINC) in Washington notes that the bypass calculation excludes the UAE's Habshan-Fujairah pipeline (capacity roughly 1.8 million barrels per day, running from Abu Dhabi to the Fujairah coast outside the Gulf), which brings the combined bypass total closer to 10-11 million barrels per day, or 55% of normal Hormuz flow. Saudi VLCCs reactivating at Hormuz to transit the Oman lane add cargo on top of the pipeline alternative.

Key tension: Whether the combination of pipeline bypass and Oman-corridor tanker transits can supply enough volume to prevent supply-shock pressure on Asian refiners during the 60-day negotiating window, without requiring a full Hormuz commercial reopening.

First Reported In

Update #135 · Trump's threats peak, his paper stays blank

Wikipedia / Kpler· 22 Jun 2026

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Causes and effects

Caused by

Saudi tankers moved, Hormuz stayed shut

The Saudi VLCCs that were only positioned near Hormuz on 19 June reactivated their transponders and transited with cargo by 22 June, advancing from positioning to confirmed transit.

Occurred 19 Jun 2026

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This Event

Gulf producers build around the strait

The bypass covers under half of normal flow, capping the panic without removing Iran's leverage.

Led to

The paper says open, water says shut

Gulf producers routing via Oman bypass capped at under half throughput contextualises the 12-ship Hormuz collapse on 22 June.

Occurred 22 Jun 2026

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Different Perspectives

Indian refiners

Indian refiners kept lifting discounted Urals as the India/Baltic price split widened past $9-10 a barrel, a gap that only grows as GL X1's Iranian wind-down cuts an alternative discounted grade off the market by 17 July. Cheaper Russian feedstock is being locked in while it lasts.

Chinese refiners

Chinese refiners gain leverage as the Urals-Brent discount widens, since Beijing's state buyers already source discounted Russian barrels near the fiscal floor unaffected by Western insurance costs. A wider discount, if it holds past 23 July, lets them lock in cheaper term contracts regardless of the cap's outcome.

US money managers (CFTC-tracked)

Managed money trimmed WTI net length into the rally, positioning that reflects doubt the Hormuz premium survives without freight or war-risk confirmation. The Brent-WTI spread widening almost entirely on the Brent leg supports that scepticism about a broad-based repricing.

OPEC+ (Saudi-led subgroup)

Saudi Arabia is defending market share through a fourth straight 188kbd August hike even as OPEC's own July MOMR cut 2026 demand growth for the fourth consecutive month. At a $108-111 fiscal breakeven, every added barrel costs Riyadh revenue it cannot recoup, so the hike reads as a positioning signal, not a demand bet.

Greek shipping registries

Greece, backed by Cyprus and Malta, is pushing a three-month cap-freeze compromise against the Commission's freeze to January 2027 ahead of the 23 July vote. Athens' and Valletta's combined tanker registrations mean a shorter review gives their insurers more frequent chances to reprice risk on Russian cargoes.

Russia (Deputy PM Alexander Novak)

Novak extended the diesel export restriction to producers on 8 July, the first producer-binding curb of the war, protecting the domestic pump price ahead of any refinery repair timeline. Urals still trades below Russia's $59 budget floor even as Brent gained, so the ban trades export revenue for fiscal stability at home.