The Gulf Crisis and China's Opportunities

In the past, the Houthi militants’ threats to blockade the Bab el-Mandeb Strait were little more than distant drone harassment. Now? Just mounting a few artillery pieces on Perim Island is enough to fully seal off the entire strait! After seizing Perim Island, the Houthis announced to the world that maritime passage would remain unaffected—except for vessels flagged by Israel and Saudi Arabia. Clearly, the Middle East—whose economy has long relied heavily on oil exports—is now facing an unprecedented crisis. 1. Times Have Changed To understand the Gulf states’ current predicament, you must first look at the map. On the eastern side of the Arabian Peninsula lies the Strait of Hormuz—currently closed due to the U.S.-Iran conflict. Even though some shadow fleets still sneak through, traffic volume has plummeted. To the west lies the Red Sea: northward flows into the Suez Canal; southward, into the Bab el-Mandeb Strait, which connects to the Indian Ocean. In the first half of this year, with the Strait of Hormuz sealed, Saudi Arabia had no choice but to reroute its crude oil westward via pipelines to Yanbu Port on the Red Sea, then load it onto tankers for southbound shipment. But now? The Houthis have also blocked the Bab el-Mandeb Strait. Thus, one of the most astonishing episodes in modern oil trade history has unfolded: Gulf oil cannot exit via the Strait of Hormuz on the east. Even after painstakingly rerouting it to the western coast, it remains vulnerable to the Houthis’ chokehold. If both straits remain blocked under current conditions, global oil supply will instantly drop by over 12 million barrels per day. This is not merely an economic slowdown—it is a direct severing of industrialized nations’ lifelines. You might ask: With all their wealth, don’t these Gulf monarchies have a Plan B for oil exports? Of course they do. Ever since the Iranian Islamic Revolution, Gulf states have obsessively pursued pipeline construction to bypass the Strait of Hormuz. Saudi Arabia upgraded its East-West Pipeline capacity to 7 million barrels per day; the UAE built a pipeline to Fujairah; Iraq even considered trucking oil to the Mediterranean—or spending billions to construct a “Development Road” straight to Turkey. Yet reality is harsh: these so-called alternative routes are fundamentally palliative—not curative. Take Saudi Arabia’s much-hyped East-West Pipeline: Do you really think delivering oil to the Red Sea solves everything? Tankers departing Yanbu Port face two grim options: either risk crossing the Bab el-Mandeb Strait—making themselves easy targets for the Houthis—or head north through the Suez Canal. But large tankers draw too much water to pass, and the alternate route—through the Mediterranean, across the Atlantic, and around the Cape of Good Hope—adds months to voyage time, doubles freight costs, and throws shipping schedules into chaos. Even more critically, pipelines themselves are the easiest targets. On September 10, several suicide drones launched from Iraq struck the Saudi East-West Pipeline with pinpoint accuracy. Satellite imagery revealed a scene of utter devastation. Saudi Arabia was forced to urgently shut down this vital artery—repairs reportedly requiring three to five weeks. See? Iran doesn’t even need to blockade the Bab el-Mandeb Strait directly. It only needs to periodically let Iraqi militias blow up pipelines—and then watch who repairs faster: them or us? So these hundreds-of-billions-of-dollars-worth of alternative routes serve only one strategic purpose: to slow down the Gulf states’ demise—not prevent it. Some may argue: If oil can’t be exported, prices will surge—so won’t Gulf states actually earn more?

When a barrel of Saudi oil must detour around the Cape of Good Hope, it means our gasoline price rises by 50 cents per liter—every drop of crude, from the heart of the desert to the shores of the East China Sea, tells the same story: when globalization’s chokepoints become unsafe, no one stands outside the crisis.

Why has CPI reacted so weakly? Because China’s energy consumption structure is relatively less dependent on oil and natural gas than other major economies—coal still accounts for about 55% of primary energy consumption. This ‘coal buffer’ insulates domestic inflation to some extent from direct shocks of international oil prices. But PPI is not so fortunate. Every 10% rise in oil prices pushes up PPI by approximately 0.4 percentage points. According to data released by China’s National Bureau of Statistics in April 2026, domestic energy prices rose 5.7% amid international crude price volatility—gasoline prices alone surged 12.6%, directly feeding into PPI’s upward pressure. CPI forecasts diverge markedly across different oil-price scenarios: Baseline scenario (USD 85/barrel): CPI center around 1.2%; inflation pressure remains manageable, allowing the central bank to maintain accommodative monetary policy. Moderate increase (USD 100/barrel): CPI center around 1.5%, still within target range—but imported inflation begins to surface. Sharp increase (USD 120/barrel): CPI center breaches the 2% target threshold, forcing the central bank into a dilemma between stabilizing growth and containing inflation. Extreme scenario (USD 150/barrel): CPI center approaches 2.8%, signaling broad-based inflationary pressure and delivering a double blow to consumer and investment confidence. China’s ‘coal buffer’ can absorb moderate shocks—but under extreme conditions, once oil prices exceed USD 120/barrel, CPI will breach the 2% target threshold, squeezing the central bank’s policy space to its absolute limit. Chapter Nine The Future of Pipelines 7 Million Barrels/Day Is No Longer Enough—Saudi Arabia Bets on Expansion The 7-million-barrels-per-day capacity ceiling is already insufficient. With Yanbu Port’s export volume surging to 4.65 million barrels per day—just shy of full capacity—Saudi Arabia realized: without expansion, this ‘desert lifeline’ would soon become a bottleneck. According to a Reuters report in July 2026, Saudi Arabia is considering expanding the East-West Pipeline’s capacity by up to 2 million barrels per day—raising total throughput from 7 to 9 million barrels daily. It remains unclear whether this will involve upgrading existing infrastructure or building a new pipeline; however, sources indicate the capacity boost may include a smaller, parallel pipeline. A more ambitious plan envisions raising capacity beyond 10 million barrels per day—requiring construction of a full-scale parallel pipeline alongside the existing one, entailing investments potentially running into billions of dollars and a construction timeline of at least three to five years. Saudi Arabia is also negotiating multilateral interconnection schemes with neighboring countries. Kuwait, Bahrain, and even Qatar have expressed interest in linking their oil exports to Yanbu Port’s system—jointly bypassing the Strait of Hormuz. Yet cross-border pipelines raise complex issues involving sovereignty, security, and revenue sharing, resulting in slow progress in negotiations. The UAE’s Habshan-Fujairah Pipeline (with a daily capacity of roughly 1.5 million barrels) offers another alternative route—delivering crude directly to Fujairah Port on the Indian Ocean, thus bypassing the Strait of Hormuz *without* transiting the Bab el-Mandeb Strait. Combined, the Saudi and UAE pipelines can divert approximately 2.6 million barrels per day—but this pales against the straits’ combined daily throughput of 21 million barrels. Pipeline expansion takes three to five years—but the crisis is happening *now*. Distant water cannot quench immediate thirst—in the interim, every tanker departing Yanbu Port must endure a 48-day circumglobal detour.

Saudi Arabia Targets 10 Million Barrels Daily Oil Pipeline Capacity

Oct 12, 2026

Saudi Arabia plans to increase oil pipeline capacity to 10 million barrels daily within three years to bolster energy security. The strategy involves upgrading the East-West pipeline and temporarily repurposing gas lines for crude exports via Saudi Aramco.

bloomberg

2026-05-09

Aramco Q1 Profit Jumps 25% as Hormuz Risks Push Pipeline to Full Capacity

2026-05-10

Aramco CEO warns 1 billion barrels lost will slow oil market recovery

2026-05-11

Strait of Hormuz Disruption Could Push Oil Market Recovery into 2027, Aramco CEO Says

2026-06-25

Saudi Aramco Resumes Oil Loading at Ras Tanura After 4-Month Halt, Data Shows

2026-06-25

Saudi Arabia Expected to Sharply Cut August Oil Prices for Asia Amid Supply Recovery