Abu Dhabi is exporting oil for the first time in three decades through a pipeline that circumvents the Strait of Hormuz as Middle Eastern producers seek to nullify Iranian threats to block the shipping chokepoint.

The $ 3.3 billion link across the United Arab Emirates to the port of Fujairah, to be inaugurated July 15, ensures that at least some Abu Dhabi crude will reach buyers if Iran shuts the waterway. A closure of the transit point would put at risk a fifth of the world’s oil supplies.

“This is a significant step to maintain the flow of oil if there is ever an issue of security around the Gulf,” said Danny Sebright, president of the U.S.-U.A.E. Business Council in Washington and a former Defense Department and intelligence official who worked on the Gulf region. “The opening of this pipeline will spur others to give careful consideration to similar plans that may have been put on the shelf,” he said in a July 1 telephone interview.

The U.S. and European Union are tightening economic sanctions against Iran, demanding that the country allow greater scrutiny of a nuclear program they suspect is aimed at developing atomic arms. The EU embargoed purchases of Iranian crude starting July 1, and Iranian officials have threatened to retaliate for what they call economic warfare by closing Hormuz to shipping. Abu Dhabi holds almost all of the oil in the U.A.E., OPEC’s fifth-biggest producer, and its link to Fujairah will enable as much as 1.5 million barrels a day of crude to bypass the Strait at the mouth of the Persian Gulf.

Seeking Alternatives
As tensions mounted earlier this year, Iraq and Kuwait, fellow members of the Organization of Petroleum Exporting Countries, said they too were seeking alternatives to exporting oil through Hormuz. Brent crude surged 14 percent in the first quarter on concern that supply from the Gulf would be interrupted. An average of 14 crude tankers sail each day through the Strait, which is 21 miles (34 kilometers) wide at its narrowest point, according to the U.S. Energy Information Administration.

The Abu Dhabi network will transport crude from Habshan, the collection point for the emirate’s onshore oil fields, across 230 miles of desert and razorback mountains to export terminals on the U.A.E.’s eastern coast, beyond Hormuz, on the Gulf of Oman. The pipeline, together with an existing network in Saudi Arabia and a link from Iraq to Turkey, will be able to transport less than half of the 17 million barrels of crude that the EIA says moves daily through the Strait.

Saudi Output
Saudi Arabia can pump about 5 million barrels a day, half its current output, through the pipeline it opened in 1982 from the kingdom’s main eastern fields to its western Red Sea coast. Iraq’s link to the Mediterranean port of Ceyhan, Turkey, has a capacity of 1.6 million barrels a day, though it currently exports about a quarter of that amount.

“The Iranian situation has highlighted the need for alternatives,” Jarmo Kotilaine, the chief economist at Jeddah- based National Commercial Bank, said by telephone July 8. “There have been talks in the past about links from Saudi Arabia to the Arabian Sea, either via Oman or Yemen.”

The Iraqi cabinet in March approved steps to diversify export routes in case of a blockage at Hormuz, including the possible revival of disused pipelines through Syria and Lebanon and a separate line into Saudi Arabia. Kuwaiti Oil Minister Hani Hussein was evaluating plans to truck its oil overland for export from Saudi or U.A.E. ports, Kuwait newspaper Al-Anba reported March 4.

LNG Exports
Qatar, the world’s largest exporter of liquefied natural gas, relies completely on the waterway for sales of its 77 million tons of annual capacity.

Should there be a closure of Hormuz it would hurt Iran as well because the nation also exports crude through the Strait, a geographical and commercial reality that suggests the Islamic republic may not act on its threats. Most Gulf oil ministers say a closure is unlikely.

“If you believe Hormuz will be closed, I will sell you the Empire State or the Egyptian pyramids,” Ali al-Naimi said in a March 20 briefing with reporters in Doha, Qatar.

In 2003, the six nations comprising the Gulf Cooperation Council -- Saudi Arabia, the U.A.E., Kuwait, Qatar, Bahrain and Oman -- began weighing a regional plan to build a pipeline from southern Iraq through Kuwait and Saudi Arabia to Oman. The Arab group decided in 2007 not to proceed, Mustafa Alani, an analyst at the Geneva-based Gulf Research Center, said in a February interview.

Shipments Vulnerable
The group’s failure to agree on a coordinated plan for exports left shipments from the Gulf vulnerable, especially cargoes to buyers in Asia, said Alani, who published a report at the time examining the potential pipeline routes.

“Any move by Iran to shut off this channel or hamper the passage of vessels in retaliation to the sanctions would have catastrophic consequences for Asia,” Vienna-based consultant JBC Energy GmbH said in a March report. National Commercial Bank said in a report the same month that crude would rise to $ 200 a barrel within 72 hours of any attack on the Strait.

The U.S. announced additional sanctions yesterday on Iran targeting its weapons proliferation networks and “front companies” helping to evade international sanctions.

The action is intended to disrupt Iran’s “nuclear and ballistic missile programs as well as its deceptive efforts to use front companies to sell and move its oil,” the U.S. Treasury said in a statement.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net