An Alternative Pipeline Strategy in the Persian Gulf

Abstract

This paper examines the idea of increasing the capacity of the trans-Saudi pipeline system by using second-generation drag reduction agent (DRA) technology, so that in the event of a Strait of Hormuz (SoH) closure[1], most of the oil[2], which currently flows through the Strait could be rerouted through the Red Sea. We find that it should be technologically feasible to upgrade the pipeline system to a capacity of 11 MBD for a cost of $600 million. This capacity assumes the use of both the IPSA and Petroline pipelines; we also present several lower capacity, lower cost options. The upgrades will take at least 18 months to install, so they cannot be implemented in response to a crisis. DRA technology thus represents an opportunity to buy strategic insurance at bargain rates. The pipeline upgrade has several important strategic benefits. It can enhance the Saudi reputation as a stable, reliable oil producer, because it will allow Saudi oil to reach world markets even during a SoH crisis. It can reduce the economic damage to the worldﾒs oil importing nations in the event of a SoH crisis, allowing the world community to respond to a closure on a deliberate and risk-minimizing timeline. In particular, this may lessen the need for U. S. force to be based in the region. Finally, the existence of an alternate oil route can reduce the political leverage Iran can gain from threatening a SoH closure, as well as reduce their motivation to actually do so. It thereby increases regional security, and reduces the chance of a SoH crisis.