The Hormuz crisis is reshaping the geography of energy. Exporters are investing in pipelines, coastal terminals and storage facilities to reduce their dependence on a narrow maritime passage. But replacing a concentrated network with a more resilient one carries a substantial construction, operating and security bill.
For energy-importing economies, the concern extends beyond the next tanker disruption. A more expensive system of delivering oil could sustain inflationary pressure, squeeze industrial margins and complicate central-bank decisions. Our assessment is that these risks deserve greater weight in the medium-term outlook—even though they do not make falling oil prices impossible.
Hormuz and Bab el-Mandeb: the crisis changed the direction of trade
The Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. Bab el-Mandeb connects the Red Sea with the Gulf of Aden and the wider Indian Ocean. Together, they illustrate how rerouting energy can transfer exposure from one vulnerable passage to another.
The U.S. Energy Information Administration’s quarterly energy-security data show the scale of the shift:
| Route | Q2 2025 | Q4 2025 | Q1 2026 | Q2 2026 |
|---|---|---|---|---|
| Strait of Hormuz | 21.0 | 21.6 | 14.9 | 4.9 |
| Bab el-Mandeb | 4.5 | 5.4 | 5.6 | 8.1 |
Source: EIA, August 2026 energy-security dataset. Figures cover oil flows, including crude and petroleum products; LNG is reported separately. These are quarterly physical-volume estimates, not price indices or seasonally adjusted economic indicators.
Hormuz flows fell approximately 77% between the second quarters of 2025 and 2026, calculated as (4.9 ÷ 21.0 − 1) × 100. Over the same period, Bab el-Mandeb flows increased 80%. These changes cannot be treated as a direct barrel-for-barrel diversion: the passages serve different trades, and the disruption also reduced production and altered demand.
The 8.1 million figure describes Q2 2026, not today’s traffic. Subsequent security developments matter. September reporting described renewed Houthi territorial gains around Mokha and Mayyun, increasing the threat to navigation. The ability to threaten ships should not be confused with complete control over both shores or every transit through the strait. See Associated Press reporting on the Houthi advance and shipping risks.
The alternative routes: useful capacity, different limitations
United Arab Emirates: Fujairah provides an outlet outside Hormuz
The Habshan–Fujairah crude pipeline connects Abu Dhabi’s inland production system with an export terminal outside the Strait of Hormuz. Reuters reported in May that the existing line can carry up to 1.8 million barrels per day.
On 15 May, the Abu Dhabi Media Office confirmed that ADNOC’s new West-East Pipeline was under construction, targeting operation in 2027 and a doubling of Fujairah export capacity. Reuters subsequently reported that construction was about halfway complete.
This is a meaningful improvement in flexibility. However, pipeline capacity is not the same as actual exports, and being outside Hormuz does not eliminate exposure to attacks on terminals, storage or approaching vessels.
Saudi Arabia: the East-West Pipeline shifts exposure to the Red Sea
Saudi Arabia’s roughly 1,200-kilometre East-West Pipeline links its eastern production region with Yanbu. It can move crude away from the Persian Gulf without requiring tankers to cross Hormuz.
Capacity and throughput must be distinguished. The system has been reported with emergency capacity of up to 7 million barrels per day; actual operating flows vary with infrastructure availability, refinery requirements and export conditions. A fixed 4-million-barrel figure therefore should not be presented as its maximum capacity. See the Financial Times’ examination of Gulf bypass routes.
Yanbu also creates a directional choice. Cargoes moving south toward Asia face Bab el-Mandeb; cargoes moving north toward Mediterranean markets use the Suez route. Moving oil westward reduces Hormuz exposure while creating a different set of maritime and infrastructure risks.
Oman: Ras Markaz and Duqm offer storage and an Arabian Sea location
Oman’s Ras Markaz terminal received its first crude shipment in January 2023. OQ described infrastructure designed to accommodate 26.7 million barrels. Its connection with Duqm refinery supports an energy hub on the Arabian Sea.
That figure measures storage, not daily pipeline throughput. Nor does terminal capacity automatically provide a land connection from other Gulf producers. A Saudi–Oman export corridor would require its own investment, agreements and construction before it could become an operational bypass.
Iraq: a trade corridor is not automatically an oil bypass
The distinction is especially important for Iraq’s proposed Development Road, intended to link Grand Faw with Turkey by land. A cargo vessel approaching Grand Faw from the open ocean must still enter the Persian Gulf through Hormuz. Overland connections can diversify onward trade, but the port’s location does not change.
A dedicated northbound oil pipeline is a separate proposition from a railway or highway. Each should be assessed by its actual connectivity, capacity, completion status and security conditions.
There is no single replacement for Hormuz
The practical response is redundancy: multiple pipelines, ports, storage sites and transport corridors. The objective is to prevent a disruption at one node from paralysing the whole network.
This resilience costs money. Pipelines require capital and maintenance; storage ties up working capital; longer voyages consume fuel and vessel time; protection and insurance add further expense. Spare capacity can also remain underused in normal conditions while retaining considerable value during a crisis.
However, construction expenditure does not mechanically set the global price of crude. Producers may seek to recover losses and investment, but market prices still depend on available supply, demand, inventories and competition. The stronger argument is that persistent disruptions and delivery constraints can maintain a risk premium and make reliable supply more expensive.
What does this mean for the West?
Europe and other energy-importing economies face a competitiveness problem. More expensive fuel raises transport and production costs while reducing the spending power households have available for other goods and services. Producers elsewhere—including Africa and Latin America—may gain opportunities where export capacity and crude quality match buyers’ requirements.
Our European policy argument is pragmatic: energy decisions should be judged by affordability, reliability and their consequences for industry. A negotiated reopening of energy trade with Russia merits examination as a policy option if acceptable security and legal conditions can be established. Supporting that discussion can reflect concern for European economic interests rather than support for the Russian government.
It is nevertheless a contested option with substantial constraints. Russia’s war against Ukraine, sanctions, supplier reliability and the danger of renewed dependence are material considerations. The EU’s current legal direction is to phase out Russian gas imports, with transition periods and a complete prohibition by the end of 2027. Any reversal would require political and legal change.
Europe must therefore assess the full cost of every available route: LNG, pipeline imports from alternative suppliers, domestic generation, efficiency, electrification and nuclear investment. Cheap supply on paper is of limited value if it cannot be delivered reliably.
Russian refinery strikes: a potential economic cost for Europe
Ukraine’s attacks on Russian refining and export infrastructure introduce another source of supply risk. Reuters reported that the export-oriented Tuapse refinery on the Black Sea halted operations after an April drone strike. Separately, its July reporting linked refinery disruptions in Russia and the Middle East with exceptional pressure on European fuel prices.
The economic concern for Europe is that a campaign intended to weaken Russia’s war economy can also increase the fuel bill of Ukraine’s European supporters. This effect can operate through globally traded diesel and other products even where Europe does not buy directly from the damaged plant. Reduced refining output can tighten fuel supplies without producing an equivalent reduction in crude availability.
European governments supply weapons and finance Ukrainian defence production. However, that does not establish the origin of the weapons used in a particular refinery attack. The reviewed reports do not substantiate a blanket claim that these Black Sea strikes were carried out with European-supplied weapons. Ukraine also operates its own long-range strike systems.
Kyiv presents the campaign as a means of reducing Russia’s capacity to sustain its invasion; Europe must weigh that strategic objective against potential energy-price spillovers. Our assessment is that these economic costs deserve explicit scrutiny alongside the security case for supporting Ukraine.
Energy inflation creates a difficult central-bank trade-off
An interest-rate increase cannot reopen a strait, repair a pipeline or provide tanker protection. This is why a persistent energy supply shock is particularly troubling: its first effect is to raise costs while weakening real purchasing power.
Central banks still have influence through demand, credit conditions, exchange rates and inflation expectations. They may restrain the spread of energy costs into wages and other prices, but doing so can deepen the slowdown. Cutting rates too quickly carries a different risk if inflation becomes more persistent.
The price level and the inflation rate must also be separated. Oil that rises and then remains expensive can keep household costs elevated even after its direct year-over-year contribution to inflation fades. Continuing inflation requires further price increases or a broader transmission into other costs.
Our concern is that repeated disruptions could prolong this process. Yet a sustained oil-price decline remains possible if supply recovers, inventories rebuild or demand weakens sufficiently.
There is a useful counterpoint in the EIA’s 6 October outlook: it forecast Brent averaging $105 per barrel in Q4 2026 and $84 in 2027 as flows recover. Those are forecasts, not outcomes. They show why persistent security risks should be treated as a reason to question the speed and durability of relief, rather than proof that relief cannot occur.
Natural gas and nuclear: diversification takes time
Natural gas can support near-term energy security where production, pipelines, LNG terminals and power plants are available. But gas has its own geography: an LNG cargo dependent on Hormuz remains exposed to the same passage, and gas cannot immediately replace oil in every transport or industrial use.
Nuclear power, including small modular reactors, offers a longer-term route toward dependable electricity with less direct fossil-fuel exposure. SMRs should be evaluated against licensing, financing, construction, fuel supply and demonstrated operating economics. They are a strategic investment possibility, not an immediate remedy for missing crude barrels.
A resilient energy system will also require efficient consumption, stronger electricity networks, storage and a range of generation sources. The appropriate mix differs by country.
What financial markets should watch
The market consequences reach beyond oil producers. Energy-sensitive industrial companies, airlines, transport operators and households face different pressures from exporters and infrastructure suppliers. Higher inflation expectations can complicate the outlook for bonds and interest-rate-sensitive equities, including technology shares.
- Physical supply: actual exports, production shut-ins and inventory changes.
- Delivery costs: tanker availability, freight, insurance and route disruption.
- Product markets: diesel and jet-fuel tightness can matter even when crude prices ease.
- Infrastructure: completed projects and sustained operating throughput, rather than announced capacity alone.
- Policy: central-bank responses to inflation persistence and weakening growth.
For related context, read our analysis of Saudi oil exports and the Brent–WTI forward curve.
The central concern is the cost of dependable energy. Alternative routes can reduce the damage from a single chokepoint, but building and protecting them takes time and money. Until a more resilient network is operating at scale, energy remains a potential source of inflation pressure, weaker real incomes and sharp market repricing.