its crude from Red Sea terminals should Iran try to block the Strait of Hormuz, industry sources told Reuters.
The Iraqi Pipeline in Saudi Arabia (IPSA), laid across the kingdom in the 1980s after oil tankers were attacked in the Persian Gulf during the Iran-Iraq war, has not carried Iraqi crude since Saddam Hussein invaded Kuwait in 1990.
Saudi Arabia confiscated the pipeline in 2001 as compensation for debts owed by Baghdad and has used it to transport gas to power plants in the west of the country for the last few years.
Iran has recently resumed threats to block the Strait of Hormuz in retaliation for US and European sanctions.
Saudi Arabia has now quietly reconditioned IPSA to carry crude and has been test pumping for a few months, several sources with knowledge of the project told Reuters.
Western industry sources said the line can carry 1.65 million barrels a day line to Yanbu on the Red Sea.
More than a third of the world’s seaborne oil exports pass through the narrow Strait of Hormuz from the oilfields of Saudi Arabia, Iran, Kuwait, Iraq, the United Arab Emirates and Qatar. Qatar’s liquefied natural gas exports are all shipped through Hormuz.
Iraq can export some oil through Turkey to the Mediterranean. And Kuwait can put some of its oil into Saudi Arabia’s pipelines to the Red Sea. The United Arab Emirates has built its own Hormuz bypass pipeline, which has just started exporting from the Gulf of Oman. That means only Qatar and Iran are totally dependent on the Strait of Hormuz to get their oil out to the world.
Worried about its reliance on the strait, Saudi Arabia increased its capacity in 1992 to pump oil from its fields—predominantly clustered in the east—across the country to the Red Sea. Capacity rose to about 5 million barrels a day through two parallel pipelines known as the Petroline.
Saudi crude exports run as high as 10 million bpd but rising demand for its crude in Asia, shipped through the strait, and falling demand from Europe, usually sourced from Red Sea ports, meant Petroline’s pumping capacity was never fully used.
The smaller Petroline pipeline was converted to carry natural gas from the east to booming industrial centers in the west a few years ago, slashing Saudi’s east-west crude transport capacity to Red Sea ports.
Saudi Red Sea industries are now reliant on gas fed from fields over 1,000 kilometers away and the prospect of cutting them off to export crude through Petroline during a Hormuz blockade is not an attractive option.
Until recently, the Saudi government had considered the risk of such a disruption too small and its western gas needs too great to switch Petroline fully back to oil. But as tensions over Iran’s nuclear program rose, it decided to put IPSA on standby to transport more crude west in an emergency.