In its heyday, Oman’s maritime empire stretched from Mozambique and Zanzibar to Gwadar in Pakistan. The modern sultanate does not extend so far, but it still holds an important position overlooking the Strait of Hormuz. Oman has gained economically from the conflict, while seeking to mediate peace. Now it could make itself a foundation stone of Gulf security.
The war has forced the IMF to downgrade economic growth forecasts across the region. But Oman is expected to expand by 4.1 per cent. It has managed to bring down its debt burden from a worrying 68 per cent of GDP in 2020 to a much more comfortable 35 to 36 per cent of GDP.
The sultanate benefits from record oil and gas exports at a time of high prices, as well as from the rest of its heavy industrial base in refined petroleum, fertilisers and aluminium. The endless queues of lorries to and from the UAE border tell eloquently of Oman’s essential role as a transit route for goods.
In May 2024, in a fortunate piece of advance planning, construction began on Hafeet Rail, which will link the industrial city of Sohar with Al Ain and Abu Dhabi. This is intended to be finished by the final quarter of 2027 and will be an invaluable route for industrial inputs to the UAE and for the export of finished products such as steel and aluminium.
By late next year, Oman should also finish a direct connection to the GCC electricity grid, allowing it to exchange more power. This will benefit its fast-growing renewable sector.
Oman has not stayed entirely out of the front line during the war. The oil terminals of Mina Al Fahal, Duqm and Salalah, and Sohar were attacked by drones, and several ships have been struck in its mainland waters, not to mention all those hit while crossing the Omani lane of the Strait of Hormuz. But the sultanate has suffered much less physical damage and disruption than its Gulf neighbours.
New energy routes
In 2016, the oil minister at the time, Mohammed Al Rumhi announced plans for an enormous 200-million barrel petroleum storage terminal at Duqm on its south-east coast. By comparison, Fujairah, which has also emerged as a strategic node during the war and is a central global refuelling point, has about 120 million barrels of capacity. Muscat’s intention was to reorient its crude oil exports from the crowded northern coast to a new terminal, which would also have the happy effect of shifting them further from Iran.
It also had in mind that other GCC nations might connect to Duqm, to give themselves an option in case of a blockade of the Strait of Hormuz. Kuwait, which has no alternative outlet, was said to be interested. Kuwait Petroleum Corporation eventually invested in the major new refinery there. But it seemed far-fetched that a new pipeline route would be needed. Eventually only 5.2 million barrels of crude storage were built, mostly to serve the refinery.
Drones, missiles, and Washington’s decision to confront Tehran on the battlefield changed that. Now Saudi Aramco is studying a pipeline to Duqm, estimated to span 1,000 to 1,200 kilometres through the dunes of the Empty Quarter, and expected to cost $7 billion. This new node has the advantage of bypassing not just Hormuz, but also the Bab Al Mandeb strait. Saudi exports through the kingdom's East-West pipeline to the Red Sea port of Yanbu have been hampered by attacks from the Houthis in Yemen and Iranian allies in Iraq.
A Kuwait Oil Company representative told the World Energy Congress in Riyadh last week that his country was evaluating a possible route to Duqm, as well as through the UAE or Saudi Arabia. This would most probably involve delivering oil by tanker to a Saudi or UAE port for onward transport, rather than transporting it all the way overland.
State energy investor OQ has announced plans to expand Duqm’s storage to 10 million barrels within three years, and eventually 40 million barrels. It is also considering buying two tankers to hold 4 million barrels in floating storage.
In September, it signed an agreement with a German company to design a new marine bunkering site at the port of Shinas, just south of the UAE border. This would be about a third the size of Fujairah, which ranks as the world’s second or third-largest ship refuelling hub.
Strategic risks
Nevertheless, Oman’s centrality to the Gulf’s new infrastructure carries three risks. First, its sites are not much further from Iran than the rest of the Gulf is, and can still be attacked if hostilities escalate. Indeed, Muscat might even put itself in the line of fire if Tehran decides it cannot tolerate too much by-passing of the totemic Strait of Hormuz.
The second is almost the opposite: if peace breaks out, much of this infrastructure might seem unnecessary. New pipelines will take from three to five years to build. By then, regional politics and security may look very different. Projects may be terminated halfway through, or left little-used. Oman does not have the deep pockets of its neighbours, who are able to invest heavily in strategic security.
Third is that many of these projects are clearly competing with existing Gulf terminals. There is already some disquiet over Muscat’s apparent closeness to Tehran at times during its mediation. Most notably, this surfaced in the debate over tolls for use of the Strait, or essentially Iranian extortion.
The other Gulf nations have suffered and spent heavily in the conflict. Of course, they want to leverage Oman’s strategic depth. But they do not want to make obsolete their own decades of massive investment in centres such as Fujairah, Jebel Ali and Yanbu, and new projects at sites such as Khor Fakkan, Al Rugaylat and Dibba.
Past such ventures across Iraq, Syria, Turkey and Saudi Arabia have suffered from sabotage, nationalisation, or commercial breakdowns. Saudi Energy Minister Prince Abdulaziz bin Salman wisely pointed out that successful multinational pipelines require stakeholders from all sides. Tying Gulf security to Oman needs not only sinews of steel, but political harmony.