Bypass Routes Ease Gulf Supply Fears but Iraq's Output Gap Remains Wide
Gulf bypass pipelines are delivering results and pulling crude lower, but Iraq's output is less than half pre-war levels and Iran has rejected fresh talks.
ICE Brent crude front-month traded near $71.59 on Thursday (2026-07-02) as reports of recovering flows through alternative export routes strengthened analyst forecasts of oversupply, even as Iran confirmed it would not hold fresh talks with US envoys and ships continued to be struck in the Strait.5
The price move tracked a narrative gaining ground among traders: that the bypass infrastructure deployed since the conflict began in late February is delivering enough volume to reduce the acute shortage. Saudi Arabia is routing crude through its Red Sea terminal at Yanbu, the UAE is exporting via the Fujairah pipeline on the Gulf of Oman, and Iraq has laid plans to expand flows toward Turkey. Kuwait also announced on Thursday (2026-07-02) that it is seeking consortium bids for a $7 billion pipeline of its own.5
The Saudi workaround is the most consequential. Aramco's East-West crude pipeline, originally rated at 5 million barrels per day, was extended to 7 million b/d in eight days once the conflict began, keeping roughly 60% of the kingdom's pre-war exports flowing via the Red Sea, according to data cited by Abu Dhabi's media office. Aramco first built in that headroom during 2019, when it temporarily converted natural gas liquids pipelines to accept crude after drone strikes on its facilities.1,3
The UAE's position looks more constrained. The Abu Dhabi Crude Oil Pipeline — the Habshan-Fujairah line — carries up to 1.8 million b/d, well short of the country's potential. ADNOC has accelerated a West-East expansion targeting 5 million b/d by 2027, brought forward three years from the original schedule, after Abu Dhabi Crown Prince Sheikh Khaled bin Mohamed ordered the pace raised following the conflict's outbreak. The UAE energy minister told Reuters that capacity could reach 6 million b/d if required, though ADNOC's last public output figure — from May 2024 at 4.85 million b/d — has not been updated since.1,4
Iraq remains the weakest link in the bypass story. OPEC's latest production figures show Iraq pumped 1.76 million barrels per day last month, up from April's average of 1.49 million b/d but still less than half the country's output in the final pre-war month, when production exceeded 4 million b/d.5 Plans to boost flows toward Turkey are in train, but planning corridors and building them are different timelines.
Before the conflict, the Strait of Hormuz averaged 21 million b/d of oil transit in 2022, around 21% of global petroleum liquids consumption, according to EIA data.3 The existing bypass capacity does not come close to covering that volume. Industry estimates put each week of full disruption at roughly 100 million barrels removed from global supply, intensifying concerns over shortages and price volatility.2 Producers routing around the Strait reduce the damage; they do not eliminate it.
The shift toward analyst oversupply calls sits uncomfortably alongside those figures. Iran's refusal to open negotiations with US representatives — coming after ship strikes that continued within the Strait — closes the main diplomatic off-ramp that bears had been pricing.5 If flows are recovering, it reflects producers rerouting rather than the blockade easing. The distinction matters when assessing whether the current calm in crude holds or reverts sharply on any escalation.
Kuwait's move to seek consortium bids illustrates the broader calculation. At $7 billion, the proposed pipeline adds to a capital commitment already underway across the Gulf, concentrated in facilities that will take months or years to reach full capacity. Producers are treating Hormuz bypass infrastructure as permanent portfolio diversification, not a short-term emergency measure.5
With ICE Brent front-month near $71.59 and Iran signalling no near-term diplomatic opening, the gap between analyst oversupply narratives and Iraq's still-depressed production trajectory is the variable worth tracking. A further deterioration in Baghdad's Turkey corridor plans — or another Hormuz incident — would test how quickly the bypass routes that have so far prevented a worse price spike can be pushed harder.5,1