The recent strikes by the Houthis, an Iranian proxy group operating out of Yemen, on shipping passing through the Red Sea have been seen by many commentators as Iran turning the screw on the world economy from a position of strength. If you believe the Iranian regime’s propaganda, Iran is in full control of the Straits of Hormuz and is now bringing their allies in Yemen into the fray to cut off another vital artery for global trade.
But what if this is a sign that the regime’s grip on Gulf trade is slipping? The Houthis have largely sat on the sidelines in this war until now, and their intervention, no doubt at Iran’s direction, has already invited significant retaliation by Saudi Arabia. So why would Iran risk the destruction of yet another of its proxy groups if it already has the world by the throat in Hormuz?
In early June, when President Trump rushed to sign the Memorandum of Understanding (MOU) with the Iranian regime to reopen the Straits of Hormuz at the G7 summit in Versailles, he claimed that “the alternative would be a worldwide depression.” Roughly 20% of global oil consumption and a significant portion of liquid natural gas (LNG) trade normally pass through the Straits. Trump was simply reflecting the warnings by the OECD and others that the continued closure of the Straits would lead to “second-round inflation shocks” as higher oil prices feed into other downstream costs, visible physical shortages, an oil price as high as $200 a barrel, an LNG crisis, energy rationing and industrial shortages, and even a major global recession.
Most of the forecasts of doom implicitly assumed that the Gulf’s export system would be frozen and that there would be no adaptation, ignoring the facts on the ground that the Gulf has been building a new logistics architecture in real time to bypass the Straits.
Stay ahead of the geopolitical week.
MD Briefing delivers expert analysis across five global fronts — the Indo-Pacific, energy, geoeconomics, European security, and the Middle East — every Monday morning. Free.
The Gulf states’ response has been to create four parallel escape routes. The first has been using pipelines to get the oil out and building more of them. Saudi Arabia has increased the use of its East-West pipeline to Yanbu on its southern coast, which allows it to export its oil via shipping through the Red Sea. It has ramped up from 1.7 million barrels a day being pumped through it in 2025 to its maximum capacity of 7 million barrels in 2026. It’s this Red Sea route that the Houthis are trying to disrupt.
Likewise, the United Arab Emirates (UAE) has maxed out its existing Habshan-Fujairah pipeline, which can take up to 1.8 million barrels a day, and the Abu Dhabi National Oil Company is already halfway through building another pipeline running parallel to the first that is expected to double the UAE’s export capacity once it’s completed by the end of this year. The Fujairah port, with its huge storage, transfer and export facilities lies on the Gulf of Oman – largely outside the Iranian mined zones in the Straits.
The second has been an elaborate offshore oil transfer network in the Gulf of Oman. Instead of loading giant tankers deep inside the Gulf and making merchant ships easy targets for Iranian missiles or its fast interception boats, smaller vessels move cargo to offshore transfer hubs like the UAE’s Fujairah port or the Omani port of Sohar. Cargo like crude oil and petrochemicals are transferred to larger vessels, which then continue to Asia or Europe. The Gulf of Oman is effectively acting as a giant floating export terminal that is harder for Iran to control.
The third escape route has been the Oman-UAE overland logistics network. Not primarily about oil, the ‘Green Corridor,’ which links Omani ports at Sohar, Duqm, and Salalah to Dubai, Jebel Ali, and UAE airports, was rapidly expanded with customs integration and bonded transportation, reducing red tape to allow cargo to be transported by road with minimal hassle. Since the Straits crisis, both countries have also created a dedicated customs and logistics route through the Sharjah-Oman corridor to create another alternative to braving Iranian mines and drones.
Oman’s ports at Sohar—just southeast of the Straits; Duqm—a deep-water port further south on Oman’s Arabian Sea coast with large industrial and logistics zones; and Salalah—a long-time stopover point for ships passing between Asia and Europe—have become alternate gateways for Gulf nations trying to get their exports out of the region and are becoming increasingly integrated into Gulf supply chains. Combined with the streamlined overland routes, these ports are acting as an ever-expanding escape hatch, ensuring important goods continue to reach world markets.
Finally, there has been Saudi Arabia’s Land Bridge strategy, one of the most dramatic adaptations in the region and the most underreported. The Kingdom rapidly expanded its trucking fleet from 600 to 3500 and, together with its rail networks, has been moving thousands of tonnes of exports, which would have been stuck on the Gulf coast, across the Arabian Peninsula to Red Sea ports such as Yanbu, bypassing the Straits of Hormuz altogether. These shipments are carrying fertilizers, phosphates, sulfur, and industrial minerals, all of which various doom-mongers had been warning would be catastrophically undersupplied.
This is without mentioning the often under-the-radar efforts of US Central Command (CENTCOM) led by Admiral Brad Cooper. Cooper’s task force has been quietly ensuring millions of barrels of oil could escape through the Straits with Navy overwatch and the suppression of Iranian missile and naval interception capabilities with targeted strikes. The latest estimates show that the Gulf’s adaptation efforts plus the US Navy escorts have restored 75-80% of the pre-blockade export volume.
These efforts combined have ensured that oil hasn’t reached the ludicrous prices some had predicted and the predicted widespread shortages of key materials haven’t materialized. Trump’s declaration in early July that the MOU is ‘over’ and the switch back to major military strikes on Iranian assets suggests the White House is also aware of this fact, no longer believing that a global recession is likely to result from continued disruption of the Straits.
And the longer the crisis lasts, the more adaptation will occur. The incentive to build more oil pipelines, expand alternative ports, create more rail links, and more roads to circumvent the Straits only grows the longer the Straits are impeded. The Gulf may emerge from the Hormuz disruption permanently less vulnerable to it, and Iran, fearful the Gulf is already escaping from the straitjacket it’s tried to place on it, is scrambling to try to stop them.
