Treasury Secretary Scott Bessent says the Strait of Hormuz will be irrelevant to markets within two years, betting on pipelines built to route around it. Days after he made that claim, drone strikes knocked out Saudi Arabia's main bypass line and Houthi forces tightened their grip on the Red Sea route it feeds into. US gasoline and diesel prices have climbed sharply since the war began.
According to Oilprice.com: Treasury Secretary Scott Bessent told Larry Kudlow at a G20 finance ministers' meeting in Asheville on September 1 that the strait will be "a worthless piece of water" within two years. The forecast rests on trade patterns that predate the war, not on anything Iran does.
A Bet Built on Old Numbers
US crude oil imports from Persian Gulf countries were already at their lowest level in almost 40 years before February 28, at about half a million barrels a day, 7% of US crude imports, according to the EIA. Domestic production and Canadian imports had displaced those Gulf barrels years earlier, so Hormuz stopped mattering to US supply long before the war started.
Bypass Pipeline Sits Offline
Saudi Arabia's East-West pipeline carried roughly 7 million barrels a day to Yanbu on the Red Sea during the worst of the shutdown, offering proof that bypass routes could work. But drone strikes launched from Iraq shut the pipeline down on September 10, and the Red Sea route it feeds into is compromised on its own terms: Houthi forces seized Mocha and the Hanish Islands this month and took effective control of the Bab al-Mandeb strait, after declaring a maritime embargo against Saudi shipping in July.
Before the war, nearly 34% of global crude trade — about 15 million barrels a day, most of it bound for Asia — passed through Hormuz. The IEA estimates existing Saudi and UAE bypass routes can reroute only 3.5 million to 5.5 million barrels a day, leaving a large share of pre-war flows without a pipeline alternative.
Producers Improvise, Prices Keep Climbing
Qatar and Kuwait, the two GCC producers with no bypass pipeline of their own, have pushed combined exports back to 70% of the 2 million barrels a day they moved before February 28, using shuttle tankers into the strait and ship-to-ship transfers in the Gulf of Oman. Kuwait's output collapsed from 1.16 million barrels a day in March to 573,000 barrels a day in May before that partial recovery. Saudi Aramco, meanwhile, has pivoted to spot sales and ship-to-ship transfers in the Gulf of Oman rather than wait on the pipeline, and has reportedly delayed some September deliveries to European refiners.
US gasoline reached $4.44 a gallon nationally Thursday, 49% above the pre-war price, while diesel is up 68% over the same period. Consumer price inflation rose 3.4% year-over-year in August, up from 2.4% in February. The war has cost $38 billion in its first four months, the Pentagon confirmed in writing this week.
Bessent's two-year forecast, in that light, is not a peace plan. It concedes in public that the strait stays contested for the foreseeable future while the industry builds its way around it.
Source: Oilprice.com
Trading involves risk.
Risk Disclaimer
