GCC Needs Self-Insurance Ahead of the Next Hormuz Strait Crisis

The crisis triggered by the US-Israel war with Iran has affected GCC member states to varying degrees. Oman remained largely unscathed, with its ports and terminals operating normally. Saudi Arabia and the UAE managed to reroute some oil exports via Yanbu and Fujairah ports to bypass the Strait of Hormuz. Kuwait, Bahrain and Qatar, by contrast, found themselves nearly cut off from global markets and face the risk of economic recession.

In this context, GCC states need more than ever to demonstrate unity and tackle the crisis through collective action. The issue of cohesion is not merely about showing neighborly goodwill—it is about setting up mechanisms now to mitigate the consequences and value of any future closure threat. If self-serving approaches continue to prevail over collective action, it will have severe economic repercussions for the entire GCC and threaten the bloc’s survival.

So far, there have been some expressions of solidarity in statements. At the GCC consultative meeting in Jeddah on April 28, Gulf leaders tried to show unity and discussed potential solutions. However, there is still no sign that these discussions have moved beyond the expert level.

Swap agreements as a tool for unity

There are three relevant types of swap mechanisms the GCC could consider: physical, contractual and quality swaps. Physical and contractual swap agreements allow one party to deliver an equivalent commodity to fulfill a contract on behalf of another. Quality swaps exchange one product type for another to match refinery feedstock needs or optimize transportation costs.

Instead of Kuwaiti, Qatari or Bahraini shipments transiting the Strait of Hormuz, buyers could receive an acceptable substitute at Yanbu, Fujairah, Duqm, Ras Markaz, Sohar, Qalhat, Singapore, India, South Korea, Japan or Europe. The parties would settle accounts through future deliveries, cash compensation, product exchanges or volume-holding fees.

Swap agreements are not alien to GCC member states. In 2013, when Egypt could not meet its gas obligations, Qatar agreed to export its LNG directly to customers Egypt could not serve. In 2021, UAE’s ENOC won a bid to swap 84,000 tonnes of Iraqi fuel oil for delivery to Lebanon. In 2024, Oman LNG executed about two swaps per month. All these examples show that Gulf states and their national energy companies have the expertise needed to implement intra-GCC swaps.

Insurance for the Future

Implementing any swap agreement would require significant effort, along with high political will, trust and common determination. Currently, there are physical limits to any deal, as GCC infrastructure lacks sufficient capacity to fully reroute the export volumes that pass through the Strait of Hormuz.

In the short term, swap agreements mean that a group of states—Saudi Arabia, Oman and the UAE—would sacrifice some income and market share for the benefit of others. But in the long term, all stand to gain. Saudi Arabia plays the most critical role, with the largest options to bypass Hormuz and the biggest deliverable crude volumes. The UAE and Oman can also play key roles.

If these swap deals are implemented, they could strengthen GCC unity and help members avoid future intra-bloc economic competition. More importantly, they could encourage the launch of a larger regional infrastructure development campaign, reducing reliance on the Strait of Hormuz and diminishing its value as a geopolitical tool. With a well-functioning swap mechanism and infrastructure, customers will feel more confident continuing relationships with all GCC suppliers. In the long run, this could serve as the GCC’s insurance against any future upheaval in the region.