Brent crude futures topped $100 a barrel (Read RBC note) as disruption at the Strait of Hormuz spread to Bab el-Mandeb in the southern Red Sea. Combined with intensifying Black Sea fighting between Russia and Ukraine, the widening chokepoint crisis has put the energy complex and broader global commodities market on edge.
"The curve on Brent and WTI is getting again very steep backwardated compared to when the diplomatic route to solve the Middle East conflict was on the table and seemed to be making progress," UBS analyst Claudio Martucci wrote in a note.
The reemergence of chokepoint chaos in the Strait of Hormuz, now spreading to Bab el-Mandeb, has provided Gulf states with a critical reminder of the risks associated with maritime export routes. This disruption is accelerating efforts to bypass vulnerable chokepoints and spurring a major infrastructure boom.
At least seven major pipeline projects are under construction, being planned or under discussion, according to the Associated Press.
Saudi Arabia's East-West pipeline already provides the region's most important alternative, carrying crude from Abqaiq to Yanbu on the Red Sea.
The UAE has also increased oil shipments to Fujairah on the Gulf of Oman, bypassing Hormuz. Together, the Fujairah route and Saudi Arabia's East-West pipeline had between 3.5 million and 5.5 million barrels a day of spare capacity before the war, according to the EIA. Both pipelines are now operating near capacity.
Even Dubai's state-owned ports and logistics giant, DP World, is planning to bypass the critical waterway with a new container port on the UAE's east coast in Fujairah.
The UAE has plans to expand Fujairah's export capacity, and more recently, the US is backing talks to revive an oil pipeline from Iraq to Syria's Mediterranean coast. This would create yet another export route that would entirely bypass the Hormuz chokepoint and, in turn, erode Tehran's leverage over shipping traffic.
Our coverage on the Gulf energy rewiring:
What's key to understand here is that seven projects by U.S.-aligned Gulf states are set to rewire energy flows in the Gulf region, which will only erode Tehran's leverage over Hormuz.