Saudi Arabia Eyes Major Red Sea Pipeline Expansion to Bypass Hormuz

Crude oil prices ticked higher on August 17, with the United States Oil Fund (AMEX:USO) trading at 126.60 dollars, up 1.26 percent on the day. The move comes as Saudi Arabia eyes a major expansion of its East West pipeline, a project that would let the kingdom route millions more barrels around the Strait of Hormuz entirely.

USO sits comfortably within its 52 week range of 102.42 to 142.33 dollars, and its relative strength index of 53.67 suggests the fund is neither overbought nor oversold. That middle ground reflects a market still digesting the aftermath of a tense summer for Gulf shipping, even as prices stay well off both their yearly high and low.

Why Saudi Arabia Eyes a Route Around Hormuz

Reuters reported that Riyadh is weighing an increase in the capacity of its East West pipeline by as much as 2 million barrels per day. Built in the early 1980s, the pipeline already carries up to 7 million barrels daily from eastern Saudi oil fields to the Red Sea terminal at Yanbu, and it proved its worth during the recent Hormuz crisis by letting crude bypass the Persian Gulf altogether. The talks are early stage, but they mark a clear shift in how Gulf producers view the strait: not as a fixed cost of doing business, but as a risk worth engineering around.

Saudi officials have reportedly held preliminary conversations with Kuwait about joining the expanded system. Kuwait currently has no alternative export route of its own, which leaves it fully exposed to any disruption in the strait. Iraq faces a similar bind, since its pipeline to Turkey keeps getting knocked offline by outages and political fights. Qatar is said to be studying whether its LNG exports could also ride an alternative path through Saudi territory, a sign that the rethink extends beyond crude oil into natural gas as well.

What Five Months of War Changed

Five months of conflict, tanker attacks, and Iranian threats against commercial shipping have left Gulf producers treating Hormuz as a liability rather than a given. Traffic through the strait has picked back up since a U.S. Iran framework agreement in June, but shipping volumes remain below where they stood before the fighting started. Independent tanker operators are still paying elevated war risk insurance premiums, and Iran has continued to signal that it wants a say in how vessels move through the waterway, including floating the idea of charging ships once negotiations wrap up.

The Cost and Timeline Ahead

Nobody is pretending this will happen fast. An expansion of this scale would take years to build and cost billions of dollars, and nothing has been finalized. But the willingness to even discuss it signals that Saudi Arabia and its neighbors no longer see Hormuz dependence as tolerable background risk. For oil markets watching USO and other benchmarks, the pipeline talk adds a longer term supply story to a session already lifted by modest daily gains, even as the physical project itself remains firmly in the planning stage.

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