Oman: Logistics Fast Track

What happened: Without a settlement to the Hormuz blockade, Gulf logistics operators are leaning heavily on Oman’s safe haven status, adding to the economic benefits for the Sultanate.

Why it matters: Oman’s Vision 2040 strategic plan focuses on building the transport, shipping, ports and airport sectors. Fast-tracking these plans can help address the extra demand.

What happens next: The government aims to create a permanent advantage out of the crisis — but only if it can successfully navigate political differences with its neighbors, namely the UAE.

While peace negotiations between the US and Iran continue in Islamabad, the sides’ positions remain far apart, with the Iranian side apparently intent on cementing the leverage they have achieved over the Strait of Hormuz.

Meanwhile, Oman continues to reap benefits from the war — risking jealous ire from its negatively impacted GCC neighbors. Revenues from Oman’s oil and gas production have risen sharply since the war began. Authorities have deferred scheduled maintenance of key sites to take advantage of the market.

Crude production was 1.052mn bpd in March, up from 1.025mn bpd in February. Exports in March were 32.07mn bpd, up 10% year-on-year, but revenues rose even more at 26%, from $2.3bn to $2.9bn. (In the region, only Saudi Arabia has matched this performance, enjoying increased revenues from higher prices despite lower volumes.)

Gas production rose sharply, from 4.312 bcm in February to 4.976 bcm in March. But, uniquely within the GCC, Omani exports have remained steady, with no noticeable interruptions.

Gulf Logistics Pivot

While the political stand-off continues, multiple GCC countries are increasingly using Oman’s direct access to the Arabian Sea for general traffic. Revenues at both ports and airports have risen sharply.

Truck routes from Saudi Arabia to Omani ports (green), Etihad Rail to Fujairah (red) and Hafeet Rail nearing completion (purple)

The crisis has been an engine for change. The emirates of Dubai and Sharjah have both agreed on new customs procedures with Oman, to reduce duplicated customs checks for heavy goods vehicles at the border control points — Hatta in Dubai and Khatmat Malaha and Al Madam in Sharjah. This has sped up deliveries from cargoes destined for the UAE, which are landed in Salalah, Duqm, Muscat and Sohar. For Dubai deliveries alone, Omani customs declarations have soared from 12,000 declarations worth $270mn in March to 100,000 worth $2.16bn in April.

The agreement with Sharjah has been prompted by bottlenecks at the Port of Fujairah, a long-troubled operation. Goods can now be landed in Sohar instead, where the port is run by an efficient joint venture between Asyad and the Port of Rotterdam.

Also experiencing a heavy increase in traffic is Route 95 across the Empty Quarter and through the Shaybah oilfield. Starting near the Saudi-Qatari border crossing at Salwa, the route passes through the Omani Ramlet Khelah checkpoint, which opened in January 2023. Replacing a sand road, the use of Route 95 is now an economic proposition for Saudi truckers loading up in both Duqm and Salalah.

Future Plans Worthy of Acceleration

The biggest project to benefit is likely to be Hafeet Rail, a joint venture between Oman and the UAE linking the port of Sohar to the Etihad railway system. This first phase of the project is under construction, was 40% complete in April and is due to be operational in 2028. The crisis could prompt leaders to bring forward the next phase, which will extend the line to Muscat.

A prize still to be secured is an oil or gas pipeline from within the GCC to an Omani export terminal on the Arabian Sea coast. There is a tentative plan with the Saudis to build a pipeline to the crude storage facility at Ras Markaz, but there is no indication yet that this will be accelerated. Such a project would strengthen the economics of the Duqm Special Economic Zone.

The Emiratis are focusing on doubling the throughput of their Habshan pipeline to Fujairah to 3m bpd by 2027. But Fujairah could prove too close for comfort to Iranian drone launch sites. In that event, Oman holds a strong alternative investment case for greater redundant export capacity.

The logistics infrastructure — including ports and airports, as well as shipping and airlines — is ripe for further expansion on the back of the crisis and in line with Vision 2040. At the center of this effort is Economy Minister Dr. Khamis bin Saif bin Hamoud Al Jabri, who has led oversight of Vision 2040 for a decade and is a close confidante of the Sultan. For him, the trick will be to harness the increased short-term demand to Oman’s long-term benefit and to incubate supporting supplier infrastructure to capture in-country value.

The Political Dangers

Although it has likely suffered more strikes on ships in its territorial waters than any other GCC state, Oman has suffered far fewer Iranian drone and missile attacks on its oil and gas infrastructure — just 19, compared to the neighboring UAE’s 2,848 or Saudi Arabia’s 1,020. This is cause enough to feed suspicions in the UAE that Oman is too friendly with Iran, particularly when reinforced by post-strike statements from the Iranian General Staff that Oman “remains a friend and neighbor.”

There is a particular concern in the GCC that Oman will do a deal with Iran, leading to controls on access to Hormuz. For Oman’s neighbors, free and unhindered access through the Strait, as enjoyed before the war, is not a “nice to have,” but a critical element of national security and economic prosperity, irrespective of what Iran might agree to with other parties.

Oman has been explicit in stating it wants a return to the antebellum situation and to the Traffic Separation Scheme adopted in 1968 by the International Maritime Organization (IMO) with Iranian and Omani endorsement. Omani Transport Minister Saeed bin Hamoud Al Maawali has told the Shura Council that “Oman has signed all international maritime transport conventions and accordingly cannot impose any fees on Strait passage.” But Oman did not sign the joint statement issued on 18 May to the IMO by all other GCC nations, complaining that Iran was dictating what ships could pass through Omani territorial waters.

Continued vacillation and mediation-related discussions between Oman and Iran fuel concerns that Oman is cooking up a compromise with Tehran. This threatens a dramatic rift between Oman and the UAE — one that could provoke a revival of Ras al Khaimah’s claim to the Musandam peninsula.

Oman is addressing these concerns by staying particularly close to Saudi Arabia but otherwise by saying as little as possible, save reiterating its desire to see the Strait restored to its pre-war status and to express sympathy with fellow GCC countries still facing Iranian attacks. So far, this has been enough to prevent an overt rift. But a return to open warfare would risk collapsing GCC solidarity — jeopardizing Oman’s rising prospects, which rest in large part on robust cross-border ties.