AUGUST 2026
The collapse of the US-Iran ceasefire framework and re-start of the war illustrate how ambiguous diplomatic language can undermine efforts at de-escalation. Divergent interpretations of provisions in the June 17 memorandum, particularly those governing navigation through the Strait of Hormuz, contributed to renewed military tensions, disrupted energy trade and heightened concerns about regional stability. As both sides hardened their positions, the episode underscores the importance of precise, enforceable diplomatic agreements in preventing disputes from escalating into broader geopolitical and economic crises.
The conflict and the resulting disruption to shipping exposed a fundamental weakness in the Arabian Gulf’s LPG trade. The region possesses extensive gas-processing, LPG fractionation, storage and marine loading capacity, but most of these assets are located inside the Gulf and depend on a single narrow maritime outlet, the Strait of Hormuz.
Crude oil entered the crisis with at least some export redundancy. Saudi Arabia can transport crude westward to the Red Sea, while the UAE can move part of its crude oil to Fujairah on the Gulf of Oman for exports. Iraq also has limited access to the Mediterranean through its northern pipeline system.
LPG has considerably fewer alternatives. Saudi Arabia has a limited LPG outlet through Yanbu, while Oman operates an independent LPG export system outside of the Hormuz Strait. However, the available Saudi west coast facilities have product availability and marine loading constraints that limit their ability to export large volumes, while storage and marine loading constraints do not allow Oman to handle VLGCs. Qatar, Kuwait, Bahrain, Iraq and the UAE’s principal LPG facilities remain dependent on passage through the Hormuz Strait.
As maritime traffic through the strait declined, Gulf LPG producers faced more than a shipping disruption. Storage tanks began to fill, scheduled cargoes were delayed or cancelled, and oil and gas production, including refinery operations, had to be curtailed. LPG is produced alongside crude oil and natural gas and through refining operations. If LPG and condensates cannot be stored, processed or exported, the resulting constraints can move upstream and affect the broader oil and gas value chain.
The crisis has therefore transformed the Hormuz from a geopolitical risk into a direct infrastructure, operational and commercial problem.
Responding to the blockage
The immediate response has been operational rather than structural. New cross-country pipelines cannot be completed during an active crisis and require years of planning and coordinated execution. Therefore, producers have relied on existing assets, inventory management and commercial flexibility.
For Saudi Arabia, Yanbu’s importance as an alternative LPG outlet has increased. The country already has an east-west pipeline carrying NGLs from eastern processing facilities to the Red Sea coast. At Yanbu, these liquids can be processed, stored and exported without passing through the Hormuz.
Yanbu is nevertheless much smaller than Juaymah, Saudi Arabia’s principal Gulf-side LPG terminal. Juaymah was designed for high-volume propane and butane exports and is integrated with the Kingdom’s major eastern gas processing system. Yanbu functions principally as an alternative, smaller outlet rather than a full replacement.
Yanbu loadings came under stress following the latest Houthis’ threat to attack vessels passing through the Bab el-Mandeb Strait if US forces attack Iranian power infrastructure. As per various media reports, several oil tankers linked to Suadi Arabia or engaged in Saudi Arabian crude oil or refined product transportation have already been attacked, while the US has been blocking Iran-linked vessels from passing through the Hormuz Strait. Houthis reportedly have announced that they would not be attacking Chinese-linked vessels. There were reports of attacks on vessels as far as Egypt. These media reports also indicate that several vessels avoided transiting through the Bab el-Mandeb strait and were seen heading to Suez Canal, the latest being the 2008-built NY Lord (84,600 m3) which loaded from Yanbu on Jul. 28.
With the vital link between the Red Sea and the Gulf of Aden virtually closed, Yanbu exports may potentially go through the Suez Canal, followed by Cape routing for Asia discharge. As such, increased voyage durations will squeeze global transit capacity. With a consequent rise in voyage costs, freight rates may also increase.
Saudi Aramco cancelled August acceptances as well. LPG exports from Ras Tanura have been halted since February due to ongoing pipeline issues at Juaymah, where repair works remain incomplete. Market sources with whom Poten spoke said that Juaymah pipeline construction would take more time than the rumors indicate. It should be noted that several market players had indicated that the pipeline would be operational by June 2026.
The UAE has relied on Fujairah for crude-oil resilience, but not yet for LPG exports. Fujairah can receive gas carriers and support LPG ship-to-ship (STS) operations. However, infrastructure is primarily designed for crude oil, refined products and bunkering. The UAE’s primary LPG fractionation and export assets remain at Ruwais and Das Island, both of which are exposed to Hormuz.
While Ruwais has managed to send out cargoes, mostly on a delivered basis to Asian buyers, the LPG facility at Das Island has remained non-operational with hardly any export movements. ADNOC has been engaged in selling LPG using STS off Oman and Vadinar located on the West Coast of India. They appeared planning to carry out STS off Male, Maldives, due to rising threat of an attack off Oman and delays at Vadinar.
Additionally, ADNOC secured two VLGC-sized cargoes per month of term FOB commitment from the Enterprise terminal in 2026, up from one cargo in 2025. ADNOC has secured at least three VLGC-sized cargoes per month of FOB commitment from the same terminal from 2027 onwards, which is expected to last until 2029.
Qatar’s LNG, LPG and condensates production is concentrated at Ras Laffan. Qatar’s regional gas pipeline exports provide some diversification for dry gas, but they do not provide an outlet for LPG or LNG cargoes. Qatar therefore remains heavily dependent on the restoration of safe passage through the Hormuz Strait.
The country has managed to send a few cargoes out during the ceasefire and has reportedly used the Dolphin project as a bargaining chip to send out a few more with neighbors’ help after the US attacks restarted.
The Dolphin project is the Middle East’s first cross-border energy initiative, transporting natural gas from Qatar’s North Field to the UAE and Oman. Operations began in 2007, with the full commission being completed in Feb. 2008, initially delivering an average of 2 Bcf/d of gas. A compression upgrade in 2016 increased the pipeline’s capacity to 3.2 Bcf/d.
Mubadala holds a 51% stake in Dolphin Energy, managed by Mubadala Energy, while Occidental Energy and TotalEnergies jointly own the remaining 49%.
Gas from the North Field is processed at Ras Laffan before being exported to the UAE through a 364 km, 48-inch subsea pipeline to the Taweelah receiving station. From there, Dolphin Energy’s extensive onshore network supplies major customers across the UAE and Oman, including Abu Dhabi Water and Electricity Company (ADWEC), Dubai Supply Authority (DUSUP), Union Water and Electricity Company (UWEC), and Oman Oil Company.
Kuwait and Bahrain face similar geographic constraints. Neither has a domestic export coastline outside the Gulf. Their most practical long-term option may be access to expanded Saudi or UAE infrastructure rather than an independent, national bypass systems. Nonetheless, following ADNOC, Kuwait Petroleum Corp. (KPC) has also been exporting LPG cargoes on CFR/DES basis. According to market sources, the following tables list a few VLGCs which have been involved in STS operations for exports by KPC.
Iraq has continued developing LPG exports from Umm Qasr and Khor Al-Zubair. Its export system can accommodate pressurized and semi-refrigerated LPG carriers. However, these terminals remain inside the Gulf, meaning Iraqi LPG exports still rely on the Hormuz Strait.
The country exported just one small cargo each in March and April, before recovering to a total of three small cargoes in May. While there were no exports in June, a total of five LPG cargoes were exported in July, the latest being onboard the 2016-built pressurized vessel Epic Sentosa (11,000 m3) for Confidence Petroleum, which discharged at Port Qasim in Pakistan.
Basrah Gas issued a FOB sell tender for 200,000 t LPG loading from Khor Al Zubair, Iraq, from Aug 1 to Nov 30, 2026, which closed on Jul. 15. As Poten understands, it has not been awarded yet.
The redirection of Iraqi fuel oil exports through Syria demonstrates how geopolitical disruptions can accelerate the development of alternative energy export corridors when traditional chokepoints become vulnerable.
Faced with disruptions linked to the Strait of Hormuz, Iraq has leveraged overland logistics networks to move fuel oil volumes to Mediterranean outlets, transforming Syria into a regional export gateway within a matter of months.
Media reports indicate that around 100,000 t of fuel oil a month is being trucked via Jordan’s Red Sea port of Aqaba, with some volumes marketed by Iraq’s Rania Group. Iraqi oil ministry points to even bigger flows, around 1 MMt of fuel oil was trucked to Syria and Jordan for exports in June, up from around 500,000 t in May.
For LPG, the underlying principle is relevant, although the practical challenges are considerably greater. Unlike fuel oil, which can be transported relatively efficiently by road, LPG requires specialized handling, dedicated storage facilities and purpose-built infrastructure. Nevertheless, the Iraqi fuel oil example illustrates the extent to which exporters and governments are willing to pursue alternative routes when critical shipping corridors face disruption.
Demand-side response
Asian buyers have sought replacement cargoes from the US, Australia, West Africa, Algeria and Argentina. US suppliers have provided the largest incremental volumes, but replacement has not been seamless.
Longer sailing distances have increased freight costs. An Arabian Gulf cargo can reach India much faster than one loaded in the US. Longer voyages also require additional VLGC to transport the same volume over a period, increasing the probability of scheduling disruptions, especially when there is congestion at Indian ports.
The shortage has affected buyers differently. Residential LPG demand is relatively inelastic because LPG remains an essential cooking fuel in several importing countries. Governments and national oil companies have therefore prioritized households over commercial, industrial and petrochemical users.
Even residential consumption has not been fully insulated. In some markets, most notably India, longer cylinder-refill intervals, delivery delays and higher prices have constrained LPG use for cooking. The expansion of piped natural gas (PNG) networks and the gradual adoption of electric induction cooking have provided some relief by reducing LPG demand.
Petrochemical consumers faced a different challenge as both LPG and naphtha became more expensive and difficult to secure. At the same time, macroeconomic weakness in markets such as in China weighed on demand for downstream products. Feedstock shortages and weak product margins therefore combined to reduce operating incentives for some petrochemical facilities.
Shipowners and traders responded by repositioning vessels to the US, seeking alternative cargo origins, renegotiating delivery schedules and arranging product swaps. In a few cases, an Arabian Gulf producer with an international trading portfolio met an Asian delivery obligation using a US-origin cargo while retaining the Gulf volume for later delivery. Some were forced to cancel deliveries, seek contractual relief or acknowledge that they could not perform.
These measures reduced the immediate disruption, but they did not resolve the underlying structural shortage.
Hormuz bypass
Regional governments are discussing alternative energy corridors. Saudi Arabia has considered expanding its east-west crude system and potentially accommodating some volumes from neighboring countries. The UAE is increasing crude capacity toward Fujairah. Iraq is considering northern and western crude export routes, while Oman is positioning Duqm and Ras Markaz as storage and export centers outside Hormuz. OQ subsidiaries and Iraq’s SOMO agreed to explore storing an initial 10 MMbbls of Iraqi crude at the Duqm-Ras Markaz complex, providing Iraq with an export-security buffer outside the Strait of Hormuz.
So far, publicly visible planning remains concentrated on crude oil and, to a lesser extent, refined petroleum products.
A dedicated regional LPG bypass has not progressed to the point of a clearly announced route, engineering design, investment approval, financing structure or commissioning schedule. LPG may eventually be incorporated into broader corridor planning, but it presents more demanding engineering and commercial requirements than crude oil.
Potential concepts include expanding Saudi Arabia’s westbound NGLs and LPG system to Yanbu; constructing a UAE NGLs or LPG pipeline to Fujairah; developing larger LPG storage and export facilities in Oman; connecting Kuwaiti or Qatari production to Saudi Arabia’s west-coast infrastructure; and creating a longer-term LPG or NGLs corridor from southern Iraq toward Oman, Saudi Arabia or the Mediterranean. These options remain substantially less mature than the region’s crude-pipeline projects and proposals.
LPG bypass complexities
Piped movement of LPG is slightly complex compared to crude oil, particularly across the long and arid desert. Propane and butane must remain liquid through pressure, refrigeration or a combination of both. In addition, many buyers require segregated propane and butane grades. Transporting a mixed LPG stream may therefore reduce commercial flexibility and limit the number of potential customers.
A dedicated pipeline requires special containment, emergency isolation, leak detection, gas monitoring, pressure relief, specialized operating and pumping systems and comprehensive emergency response arrangements. Extreme temperatures, remote terrain, sand intrusion and the limited availability of power and maintenance services add further complexity.
The receiving terminal is equally important. A viable export hub must include separate propane and butane storage, associated refrigeration and vapor-handling systems, emergency shutdown and release equipment, high-capacity firewater and deluge systems, hazardous-area electrical installations and dedicated marine infrastructure for loading or receiving LPG carriers. Without matching storage and marine capacity, a new pipeline would simply move the bottleneck from one point in the supply chain to another.
Product configuration creates another challenge. Producers could move mixed NGLs to an export location outside Hormuz and fractionate it at the destination. This approach could reduce the number of long-distance pipelines required, but it would necessitate a new fractionation complex, utilities, storage and product-loading system. Alternatively, finished propane and butane could be transported separately, preserving product quality but requiring parallel lines or carefully managed batch operations.
Cross-border politics may prove even more difficult than engineering. Participating governments would need to agree on ownership, transit tariffs, access rights, capacity allocation, scheduling, security, operational control, custody transfer and emergency management. Product specifications would also need to be verified at both entry and exit points, particularly where several producers use the same corridor.
Commercial utilization is another major concern. Crude pipelines can be supported by very large volumes and direct revenue considerations. LPG volumes are smaller compared to crude oil. An asset that appears indispensable during conflict could become underutilized once normal shipping through Hormuz resumes. Long-term transportation commitments from producers and terminal-use commitments from buyers would therefore be essential to financing a regional LPG corridor.
Oman
Oman has become an important logistics and energy platform because its major ports lie outside Hormuz. Its role during the disruption has included cargo rerouting, storage, port services, bunkering and STS operations. However, it has not yet been evacuating large quantities of LPG produced in neighboring Gulf states in the absence of any cross-border LPG pipeline.
Salalah is Oman’s most integrated existing LPG location. It has LPG processing, refrigerated propane and butane storage, product pipelines and marine loading facilities. It can therefore export Omani LPG directly to international markets without Hormuz exposure. However, it will also need storage expansion to ship out large cargoes onboard VLGCs, as well as related marine and loading infrastructure.
Duqm offers greater potential for future expansion. It has a modern refinery producing LPG, a liquid-export terminal, extensive industrial land and proximity to Ras Markaz, Oman’s strategic crude-storage center. Duqm could become a third-party LPG storage, consolidation and trading hub if sufficient supply becomes available.
Oman should develop VLGC capability incrementally. The first phase should expand refrigerated storage, loading flexibility and STS services for Omani and traded LPG. A larger regional terminal should follow if producers commit long-term third-party volumes.
For crude oil, the investment case is stronger. Ras Markaz already provides large storage capacity and offshore facilities capable of handling the largest tanker classes. Oman’s most immediate regional opportunity is therefore crude storage, blending and re-export, with LPG infrastructure developing slowly.
While major Omani ports lie on the right side of Hormuz strait, there will always remain risk of attack from Iran. The recent regional conflict demonstrated that the country was not immune to Iranian attacks, which compelled market players to choose Vadinar off the west coast of India as a STS site.
Yanbu
Yanbu is currently the Gulf region’s most credible LPG bypass route. Its advantage is that the core pipeline and industrial corridor already exist under a single national operator. Saudi Arabia can expand the system without negotiating a cross-border project in the initial phase.
Increasing pipeline capacity alone, however, would not be sufficient. Saudi Arabia would also need to raise the volume of NGLs available to the west coast and expand fractionation, refrigerated LPG storage, loading rates and berth availability.
Over time, Yanbu could accept selected third-party volumes from neighboring producers. Such an arrangement would require common product specifications, transparent access tariffs, coordinated scheduling, capacity-allocation rules and reliable custody-transfer procedures.
Yanbu’s likely long-term role is therefore that of an enlarged Saudi resilience hub with optional regional capacity. It is unlikely to become an immediate or complete replacement for Arabian Gulf LPG exports.
However, the biggest threat is persistent risk of attack from Houthis for vessels loading at Yanbu and passing through the Red Sea for discharge in Asia. According to media reports, Saudi Arabia is taking proactive steps to safeguard LPG, crude oil and refined products movements from Yanbu as security concerns in the Red Sea intensify. By leading a new maritime defense initiative focused on the Bab el-Mandeb, the Red Sea and the Gulf of Aden, the kingdom is seeking to protect critical trade flows and reduce disruption risks.
Fujairah
Fujairah is geographically well positioned to become a future UAE LPG bypass hub. It lies outside Hormuz and offers deep water, extensive oil-storage infrastructure, tanker-handling expertise and an established pipeline corridor from Abu Dhabi.
The port can already receive VLGCs and support LPG STS operations. What it lacks is the complete onshore LPG chain: a dedicated feed pipeline from the UAE’s gas processing system, LPG storage facility and a purpose-built VLGC export terminal.
A practical development strategy could begin with an independent storage and transshipment terminal. Such a facility could handle imported or ship-delivered LPG, consolidate smaller cargoes and support regional trading before a cross-country pipeline is constructed. A pipeline from Habshan or Ruwais could follow once commercially dependable throughput has been demonstrated.
Fujairah’s principal obstacle is therefore not marine access. It is the absence of a committed LPG supply chain, clear investment decisions and long-term commercial underpinning.
It should be noted here that even Iran has the capability to attack infrastructure in and around Fujairah as well.
Arabian Gulf exporting options
Gulf producers should avoid treating one large future pipeline as the sole answer to Hormuz risk. A layered approach combining physical infrastructure, commercial flexibility and regional coordination would provide greater resilience.
The immediate priority should be to maximize existing assets outside of Hormuz. Saudi Arabia should debottleneck the full Yanbu NGLs and LPG chain, including pipeline, fractionation, storage and marine-loading infrastructure. Oman should expand LPG storage and marine capability at Salalah and Duqm.
Producers should also consider establishing strategic LPG inventories outside of Hormuz. Pre-positioned stocks at Yanbu, Salalah, Duqm and potentially Fujairah could sustain deliveries during temporary disruptions and provide traders with greater scheduling flexibility.
Over the longer term, coordinated infrastructure corridors for crude oil, refined products, NGLs and LPG could lower construction costs and reduce the region’s exposure to navigation risks. Even though each product would require separate pipelines and handling systems, common rights-of-way, and security arrangements, joint efforts from utilities and terminals could reduce overall development costs. Gulf governments would need a regional framework covering access tariffs, product quality, emergency allocations, security responsibilities and dispute resolution.
Arabian Gulf producers could also make greater use of cargo swap arrangements through their trading businesses. Producers with international supply portfolios can meet contractual obligations using LPG sourced from the US or other regions when Gulf cargoes are delayed. Trading arms with upstream purchases, terminal access or long-term export positions in the US Gulf can use that exposure as an operational hedge against Hormuz disruption. Such portfolios enable sellers to preserve customer obligations even when physical cargoes cannot move through the Hormuz Strait.
Arabian Gulf FOB contracts should also provide greater operational flexibility. Potential provisions include optional loading ports, substitute origins, adjustable laycans, flexibility in propane-butane ratios and partial cargo-lifting rights. War risk insurance and freight costs should be addressed transparently through pre-agreed sharing mechanisms rather than negotiated during each disruption.
A few Arabian Gulf traders have tried to diversify risk by taking FOB exposure in the US Gulf. For example, ADNOC Trading had one FOB lifting commitment per month in 2025 from Enterprise, which increased to two cargoes each month in 2026, and is expected to increase to three VLGC-sized cargoes each month starting Jan. 2027, which will last until end-2029. Aramco Trading has around five VLGC-sized term lifting commitments from US Gulf terminals, as per market sources. Aramco Trading buys a few spot cargoes as well.
Some Arabian Gulf suppliers, such as ADNOC and KPC, have offered cargoes on a delivered basis after buyers, including major Indian state-owned oil marketing companies, indicated that they could not lift FOB volumes because shipowners were reluctant to enter the Arabian Gulf. Under one operational structure, vessels controlled or chartered by a producer’s trading or shipping affiliate loaded cargo at the Arabian Gulf terminal. Ownership or contractual control of the cargo could then be transferred once the vessel had cleared Hormuz, reducing the end buyer’s direct exposure to the most dangerous part of the voyage. Cargoes could subsequently be delivered on a CFR or DES basis or transferred by STS near Oman or India’s west coast to vessels nominated by the final buyer.
Such structures are operationally and legally complex, but they demonstrate how producer-controlled shipping can preserve exports when conventional FOB trade becomes difficult.
Reassessing exposure
Several buyers are likely to reduce their dependence on Arabian Gulf suppliers, but a complete withdrawal from Arabian Gulf LPG appears unrealistic.
The region remains one of the world’s largest sources of LPG, especially butane, and retains a substantial freight and transit-time advantage into Asia. US cargoes provide valuable diversification, but they involve longer voyages, greater freight exposure and additional working capital requirements. The US is also structurally constrained in exportable butane than in propane, limiting its ability to replace Arabian Gulf.
India is particularly unlikely to abandon Arabian Gulf supply because of the short voyage and its need for butane-rich cargoes suitable for residential LPG distribution. There are rumors that Indian state-owned oil marketing companies may diversify their procurement strategy by securing a minimum of 25% of their import requirements from non-Middle Eastern sources.
China has greater flexibility because of its substantial US propane imports and broader petrochemical feedstock choices. Even so, Arabian Gulf LPG remains valuable to Chinese buyers because of its geographic proximity, butane availability, pricing optionality and role in a diversified supply portfolio.
Japan and South Korea have increased their reliance on US cargoes in recent years, but they are also likely to retain Arabian Gulf supply relationships for trading flexibility and portfolio diversification. They may, however, demand stronger contractual protection and more explicit alternative delivery mechanisms.
The most likely outcome is diversification rather than abandonment. Buyers may reduce the minimum volumes committed to individual suppliers, hold larger strategic inventories and increasingly favor portfolio contracts that allow delivery from alternative origins. Some traders and end users may also be reluctant to accept large FOB term commitments tied exclusively to Arabian Gulf FOB terminals.
Post-war market behavior
Many buyers may return to Arabian Gulf supply once maritime conditions normalize because the region’s economic and logistical advantages remain compelling. Nevertheless, the previous assumption that Arabian Gulf cargoes are inherently dependable is unlikely to be fully restored.
For many Asian buyers, the US could become the primary baseload supplier, with Middle Eastern volumes acting as a balancing source. The market may also see declining term exposure to Arabian Gulf FOB contracts and a growing share of CFR/DES deliveries offered by Arabian Gulf producers and their trading arms.
Future term arrangements are therefore likely to favor delivered contracts with Arabian Gulf suppliers or traders that hold such supply positions, optional origins and alternative loading ports, clearer force-majeure and disruption provisions, predetermined war-risk and freight-sharing mechanisms, and explicit rights to provide replacement cargoes from international portfolios.
Traders are likely to retain greater shipping optionality through a mix of controlled tonnage, term-chartered vessels and spot freight. Buyers may hold larger inventories and maintain broader relationships with producers outside the Arabian Gulf. Major importers may also redirect part of their procurement toward the US and other regions to reduce concentration risk, even if Arabian Gulf supply remains central to their overall portfolios.
Implementation timeline
In the short term, the response from Arabian Gulf suppliers will remain operational by maximizing Yanbu throughput, increasing alternative supply, such as STS transfers outside Arabian Gulf, adjusting demand and building inventories.
In the case of a prolonged war, or a threat of it looming around longer, existing terminals that can expand storage tanks and related infrastructure at ports outside Hormuz. Terminal debottlenecking is likely to provide additional flexibility sooner than long distance pipeline construction.
A new domestic LPG pipeline, such as a UAE route to Fujairah or an expanded Saudi westbound system, could be operationalized in the medium-to-long term if investment decisions are made promptly. Cross-border corridors involving Qatar, Kuwait, Iraq, Saudi Arabia and Oman would probably require coordinated efforts and could require longer lead times. Their progress would depend less on pipeline technology than on political agreements, financing and long-term throughput commitments.
LPG cannot simply replicate the crude oil bypass model. Its physical properties, specialized storage and terminal requirements, smaller volumes and higher safety obligations make dedicated corridors more complex to develop and finance. However, LPG has transitioned from being viewed as a byproduct to a key operational constraint. Middle Eastern producers and suppliers increasingly recognize that a failure to offload LPG efficiently can create bottlenecks in upstream facilities, restricting oil and gas production and, in turn, reducing export capacity.
The most credible strategy is therefore not one grand pipeline, but a supportive diversified network of complementary routes, terminals, inventories and contractual options.
The objective should not be to eliminate dependence on Arabian Gulf LPG. It should be to ensure that the Arabian Gulf LPG remains deliverable even when its traditional maritime gateway is disrupted.
This excerpt is taken from Poten’s LPG in World Markets. Complete the form below to learn more or request a trial.