Moody's: Saudi Arabia and the UAE have alternatives for exporting oil away from the Strait of Hormuz
In its latest report, the global credit rating agency Moody’s confirmed that Saudi Arabia and the United Arab Emirates have a strategic advantage in having partial alternatives for exporting oil away from the Strait of Hormuz, through a network of pipelines, which gives them relative flexibility in the face of any potential disruptions to maritime navigation, although these alternatives may not compensate for the full volume of current exports.
The strategic importance of the Strait of Hormuz and its global impact
The Strait of Hormuz is the most vital artery for global energy markets, with nearly a fifth of the world's oil and liquefied natural gas (LNG) consumption passing through it. Any reports on export alternatives are of paramount importance given the geopolitical tensions that periodically grip the region. Historically, total dependence on this waterway has been a security and economic concern for both Gulf states and international importers, prompting countries like Saudi Arabia and the UAE to invest in alternative infrastructure to ensure the continued flow of energy to global markets.
Logistical alternatives and financial pressures on neighboring countries
In its report, Moody's explained that Saudi Arabia partially relies on the East-West pipeline, which transports crude oil from the Eastern Province fields to export terminals on the Red Sea, while the UAE has a pipeline connecting the Habshan fields to the port of Fujairah on the Gulf of Oman, bypassing the Strait of Hormuz. Conversely, the report indicated that Bahrain, Kuwait, Qatar, and Iraq will face greater financial pressures as a result of their almost complete dependence on the Strait for their exports.
The agency noted that the pressure may be less severe on Qatar, Kuwait and the Emirate of Abu Dhabi, given that these countries possess huge financial reserves and strong sovereign wealth funds that enable them to absorb financial shocks in the event that the closure of the strait is temporary.
Expected scenarios and their economic impacts
The agency based its baseline scenarios on the assumption that any potential conflict would be relatively short, lasting only a few weeks, after which navigation through the Strait of Hormuz would return to normal, making a significant credit impact unlikely in the short term. However, the agency warned that any prolonged disruption would inevitably lead to record-breaking and sustained highs in oil prices, further exacerbating global risk aversion.
On the international economic front, this scenario is likely to generate global inflationary pressures and impact credit spreads in high-yield bond markets. Furthermore, rising energy costs will complicate interest rate decisions and the policies of major central banks worldwide, increasing refinancing risks for debt issuers, particularly in energy-intensive industries.
Infrastructure and tourism sectors were affected
The report highlighted that the risks extend beyond oil to include infrastructure and liquefied natural gas facilities. Moody's added that the aviation, tourism, and logistics sectors will be among the hardest hit, facing increasing pressure as air travel restrictions escalate and passengers hesitate, particularly in key Gulf transport hubs such as Dubai, Doha, and Manama.
The agency concluded by noting the potential negative credit impact on the UAE’s ports, specifically Jebel Ali Port and Khalifa Port, which rely on the strait as a maritime access point, but the geographical diversity and extensive investments of Abu Dhabi Ports Company may help mitigate this impact.
