From shipping routes to storage in Asia, producers and buyers need a deeper series of layered buffers

Middle Eastern oil exporters and their biggest Asian customers cannot afford to emerge from the Hormuz crisis simply hoping it will not happen again. The months-long disruption has made a compelling case for building a much deeper network of defences against the next major supply shock.

The crisis has exposed the risks of concentrating so much of the world's energy trade through a handful of vulnerable waterways. It has also demonstrated that resilience is not simply about finding another route around a chokepoint. The more important lesson is that producers and consumers need multiple, overlapping buffers that can keep oil flowing when any one part of the system fails.

That should be particularly relevant when the global energy industry gathers in Abu Dhabi for ADIPEC on Nov. 2-5. One of the conference's central themes this year is reinforcing resilience and supply continuity -- strengthening the ability of energy systems to keep operating under pressure. Few recent events have provided a more severe real-world test of that proposition than the disruption of the Strait of Hormuz.

One clear lesson has been the strategic value of bypass pipelines. Saudi Arabia's East-West Pipeline and the United Arab Emirates' Habshan-Fujairah line allowed millions of barrels per day of crude to continue reaching international markets while traffic through Hormuz was severely curtailed. With capacities of up to 7 million and around 1.8 million barrels per day respectively, they prevented an already severe supply shock from becoming considerably worse.

Expanding such infrastructure is therefore an obvious first step. Abu Dhabi has a project underway that it says will double the capacity of the Habshan-Fujairah pipeline in 2027. Saudi Arabia has also been considering additional capacity on its East-West system. Iraq, meanwhile, has revived ambitions for alternative export routes, including through Syria, while seeking to maximise flows through the Kirkuk-Ceyhan pipeline to Turkey.

But more pipelines should be regarded as the beginning of a resilience strategy rather than its culmination.

The Houthi campaign against Saudi shipping in the Red Sea since July demonstrated why. Crude that had already bypassed Hormuz by travelling across Saudi Arabia to Yanbu encountered another potential chokepoint at Bab el-Mandeb in the southern Red Sea as the Houthis began targeting vessels near the narrow strait with missiles and drones. Saudi Aramco responded by redirecting some crude northwards through the Suez Canal and the SUMED (Suez-Mediterranean) pipeline, offering cargoes from Egypt's Mediterranean coast, but the longer journey to Asian customers inevitably adds time and freight costs.

Iranian attacks near Fujairah and Omani ports outside Hormuz earlier in the war, together with missile and drone strikes on energy infrastructure elsewhere in the region, reinforce the same point. Dispersed pipelines, ports and terminals reduce dependence on individual routes, but cannot fully insulate the energy system in an era of long-range missiles and drones. Bypasses can preserve supply, but they rarely preserve efficiency and inevitably raise costs for buyers already straining under higher oil prices.

The next layer of resilience should therefore be built closer to the customer.

Saudi Aramco already stores crude in Japan and South Korea, while ADNOC has also used strategic storage in Japan. These arrangements serve a dual purpose. They place producer-owned barrels close to major markets under normal conditions while providing the host country with access to supplies during an emergency.

The Hormuz crisis makes a compelling case for expanding that model.

Arabian Gulf producers could work with their biggest Asian customers to create a broader network of commercially operated but strategically accessible crude stocks across the region. Japan and South Korea already have substantial emergency inventories and experience managing their release and restocking under the International Energy Agency protocols for member countries.

The bigger opportunity may lie in extending the model towards major demand centres in South and Southeast Asia, where emergency storage coverage is generally less extensive. These countries have commercial crude and refined product inventories, typically held by domestic refiners, but the months-long U.S-Iran war tested the limits of relying on those buffers.

For the Middle Eastern producers, storing more crude near customers would not simply be an act of insurance for Asia. It would protect their own market access. A barrel already sitting in an Asian storage tank is not exposed to a sudden closure of Hormuz, Bab el-Mandeb or another shipping route between the Arabian Gulf and its customer.

For importers, meanwhile, such arrangements could supplement national strategic petroleum reserves. Governments would not necessarily have to finance every additional barrel themselves. Producer-owned inventories, commercial stocks and sovereign reserves could form different layers of the same emergency buffer, with clearly agreed rules governing access during disruptions.

The model could go further. Arabian Gulf producers and Asian buyers could establish protocols before the next crisis for reallocating cargoes, sharing information on available inventories and shipping, and prioritising critical supply needs. Regular emergency-response exercises between national oil companies, refiners, governments, ports and shipping companies could test whether those arrangements actually work under pressure.

That would turn the Arabian Gulf-Asia energy relationship from one centred overwhelmingly on long-term supply contracts and dependence on a handful of concentrated shipping routes into a broader partnership underpinned by geographically dispersed buffers and greater supply resilience.

Physical resilience will still matter enormously. More pipeline capacity, redundant export terminals, alternative maritime routes, larger tanker fleets and geographically dispersed storage all reduce the consequences when individual links in the supply chain fail. The lesson of Hormuz is that no single one of them is sufficient.

There is ultimately also a political dimension that needs to be addressed. The Arabian Gulf's rivalries are unlikely to disappear, but mechanisms for dialogue, crisis communication and maritime deconfliction can reduce the chances of political tensions repeatedly spilling into energy markets.

Producers cannot guarantee that another conflict will never disrupt Arabian Gulf oil exports. What they can do -- working increasingly with their Asian customers -- is ensure that the next disruption encounters a much deeper series of buffers before it reaches consumers.

Vandana Hari is the founder of Vanda Insights, a Singapore-based global energy market intelligence provider.

Source: Nikkei Asia