Opinion | How to make the Strait of Hormuz irrelevant

Author argues that building alternative pipelines to bypass the Strait of Hormuz is feasible and would materially reduce a major energy-security chokepoint repeatedly threatened by Iran. Such infrastructure would lower the risk of oil supply disruptions and strengthen logistics and trade resilience, but would require coordinated investment and political will.

Analysis

Engineering and EPC contractors with onshore pipeline capabilities (FTI, KBR, FLR) are the asymmetric beneficiaries: a handful of large projects—each $3–8bn—can reset multi-year backlog and margins, moving consensus EPS up 20–40% in 12–24 months if a 2–4 project wave materializes. Sovereign-owned NOCs and regional port operators that capture transshipment volume will earn durable fee income and optionality on storage arbitrage; those contracts tilt returns away from spot tanker freight and into predictable tolling economics.

Time horizon is multi-stage: procurement and financing decisions happen over 3–12 months, construction 2–5 years, and volume re-routing materializes gradually thereafter. Key tail risks are project cancellations from political pushback, Chinese/Western financing bifurcation, and a 20–30% cost inflation shock in steel/construction which would push many IRRs below hurdle rates and delay FID.

Second-order effects: sustained pipeline buildout compresses dirty tanker demand by an estimated 10–20% over 3 years, pressuring charter rates and asset values and lowering insurance premia for rerouted flows; conversely, regional refinery expansions and storage/swing capacity become optionality-rich assets for those with capital to deploy. Look for fast-moving policy catalysts (sanctions relief, export agreements, concessional financing) that can flip a multi-year construction story into a 12–18 month procurement sprint.

The consensus underestimates execution friction and political signaling: markets may be underpriced for near-term tanker tightness while overestimating the speed of substitution. That creates a tactical window to pair long engineering/fee-based exposure with short-duration bets against spot tanker cashflows as the pathway to substitution remains incremental, not instant.

Key Decisions for Investors

• Long TechnipFMC (FTI) equity or 12–18 month call spread (buy 12m calls, sell 24m higher strikes) — thesis: backlog rerating if 2–3 mid-sized pipeline awards land; target +40–60% upside in 12–18 months, stop-loss 25%.
• Pair trade: Long KBR (KBR) 6–12 months and short DHT Holdings (DHT) 3–9 months — rationale: engineering backlog re-rate vs near-term tanker rate compression. Position ratio 2:1, expected P/L skew ~+3:1 if pipeline awards accelerate; cap loss to 30% on long side, cover short if VLCC rates spike >40%.
• Buy Kinder Morgan (KMI) 9–12 month shares — income and regulated tolling provide downside cushion while incremental regional flow re-routing lifts throughput fees; target total return 12–18% with dividend yield as buffer, downside limited by regulated cashflows.
• Hedge/structured idea: buy a protective put on the pipeline long basket (FTI/KBR) financed by selling short-dated calls on a tanker index or DHT (sell 3–6m calls) — preserves upside on wins while monetizing near-term tanker volatility. Aim for net cost ~0–15% of notional; adjust if charter rates spike.