US wants to redraw Gulf’s energy map with a $5 billion bet beyond Hormuz: Report

The Trump administration has proposed investing $5 billion in a new fund to help Middle Eastern countries rebuild energy infrastructure damaged during the Iran war and reduce their dependence on the Strait of Hormuz for transporting oil and gas, The Wall Street Journal reported on Tuesday.

The proposal is under discussion with several Middle Eastern countries, including Saudi Arabia and the United Arab Emirates, the report said, citing US and Middle Eastern officials and documents seen by the WSJ. The terms are still being discussed and could change, while it remains unclear when, or if, the participating countries will sign on.

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Under the plan, the US would seek matching contributions from eight Middle Eastern countries including Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait, Oman, Iraq and Jordan.

The plan aimed of creating a $10 billion investment fund called the Partnership for Allied Trust and Construction, or Pact.

The fund would be managed by the US Development Finance Corporation, a federal agency that works with the private sector to support US national-security policy. Its programmes have historically focused on projects in developing countries rather than wealthy Gulf monarchies, the WSJ reported.

The proposal comes after the seven-month Iran conflict severely disrupted regional energy infrastructure and global oil and gas markets. Iranian missile and drone strikes have hit dozens of refineries, oil fields and natural-gas export terminals across the region, raising concerns that energy supply disruptions could persist even if the Strait of Hormuz fully reopens.

The WSJ reported that the plan is also aimed at encouraging alternative energy routes that can bypass the Strait of Hormuz. Gulf countries have been working on such routes as the conflict has disrupted normal oil and gas flows through the waterway.

However, some Middle Eastern officials questioned the timing of rebuilding energy infrastructure without a peace deal with Tehran, arguing that newly restored facilities could again come under attack.

Risky business

“This strategy has risk written all over it,” Bilal Saab, senior managing director of TRENDS US, told the WSJ.

Gulf countries have different levels of dependence on the Strait of Hormuz, Saab said. While Saudi Arabia and the UAE can support alternative routes, smaller producers such as Kuwait and Qatar remain more dependent on the waterway. Qatar says it could resume LNG operations within weeks of Hormuz reopening

The conflict has already forced Gulf producers to rely more heavily on alternative routes and stretched the global tanker fleet. Drone attacks earlier this month shut down Saudi Arabia's bypass pipeline, forcing more crude through the Strait of Hormuz and onto a tanker fleet already under pressure.

Longer voyages and additional shuttle runs around Hormuz have tied up tankers and pushed daily tanker rates to record levels.

The disruption has also spread to Red Sea trade routes, with Yemen’s Houthi rebels claiming responsibility for a Saturday attack that apparently targeted jet-fuel storage at Riyadh’s King Khalid International Airport.

Rebuilding the damaged energy infrastructure is expected to be a complex and costly process. Energy analysts and officials, cited by WSJ, have estimated repair costs across the region at tens of billions of dollars, including engineering, construction, equipment and materials.

Gulf producers from the UAE to Iraq are also racing to develop alternative crude-export routes. While these routes are keeping some Gulf oil moving, they are adding pressure to the tanker market and increasing freight costs. In Saudi Arabia, the alternatives have not sustainably eased blockages that have pushed oil production to a multidecade low.

Also Read: New attacks in Hormuz and Saudi test nerves as war's spread worsens oil disruption

“There seems to be a realization within all Arab Gulf states and even in Iraq that the status of Strait of Hormuz in the short to medium term will not revert back to what it was before the conflict,” Umer Karim, a researcher on Gulf security at the UK's University of Birmingham, told the WSJ.

Karim said the countries would need to develop “viable, secure and dependable” routes that bypass the strait. But he also warned that such a system could create geographical dependence among the participating countries and complicate bilateral relationships.

The proposed Pact fund therefore comes as the US and Gulf countries seek to rebuild damaged energy infrastructure while reducing their exposure to a chokepoint that remains central to global oil and gas flows.