U.S. proposes $10 billion Pact fund with eight Middle Eastern partners

Middle East officials see risks without Iran peace deal

WASHINGTON — The Trump administration has proposed investing $5 billion in a new fund that would help Middle East countries rebuild energy infrastructure battered during the war with Iran and reduce their reliance on the Strait of Hormuz to transport oil and gas, according to U.S. and Middle Eastern officials and documents seen by The Wall Street Journal.

Under the plan, the U.S. would seek a matching $5 billion contribution from eight Middle Eastern partners — Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Kuwait, Oman, Iraq and Jordan — with the goal of generating a $10 billion investment fund called the Partnership for Allied Trust and Construction, or Pact. Discussions are under way, and the terms of the arrangement could change, U.S. officials said. It is unclear when, or even if, other countries will sign on.

The move is a tacit acknowledgment that the seven-month conflict has roiled the global energy market and destroyed regional pipelines and refineries that will be costly to rebuild. Iranian missile and drone strikes have hit dozens of refineries, oil fields and natural-gas export terminals across the region, ensuring a prolonged squeeze on global oil-and-gas markets even if the Strait of Hormuz fully reopens, the Journal reported. Energy analysts and officials have pegged repair costs for energy infrastructure in the region at tens of billions of dollars, covering engineering, construction, equipment and materials.

Some Middle East officials told the Journal that the initiative appeared to be Washington’s attempt to cast the Strait of Hormuz as a less consequential energy route and demonstrate that the U.S. and its allies are united in confronting Iran. They added that creating a fund to rebuild destroyed energy sites without a peace deal with Tehran would be premature, as Iran could target fresh infrastructure with drones and missiles.

“This strategy has risk written all over it,” Bilal Saab, senior managing director of TRENDS US, a consulting firm, told the Journal. Gulf countries have differing dependencies on the strait, Saab said, noting that regional powers like Saudi Arabia and the U.A.E. could support alternative routes while smaller countries such as Kuwait and Qatar still rely on the waterway.

Under the U.S. proposal, the fund would be managed by the Development Finance Corporation, a federal agency that works with the private sector to support U.S. national-security policy. The DFC’s programs have historically targeted projects in developing countries, not wealthy Gulf monarchies.

Drone attacks shut Saudi Arabia’s bypass pipeline earlier this month, forcing more crude through the Strait of Hormuz and onto a tanker fleet already stretched thin, the Journal reported. The impact has spread worldwide, as longer voyages and shuttle runs around Hormuz tie up ships and push the daily rate of hiring oil tankers to records.

Gulf producers from the U.A.E. to Iraq are also racing to build alternative routes for their crude, the Journal reported. Those workarounds are keeping Gulf barrels moving, but they are tying up tankers, driving freight rates higher and, in Saudi Arabia’s case, not sustainably alleviating blockages that have left Saudi Arabia’s oil production at a multidecade low.

“There seems to be a realization within all Arab Gulf states and even in Iraq that the status of Strait of Hormuz in the short to medium term will not revert back to what it was before the conflict and they need to work upon creating viable, secure and dependable routes and corridors that can bypass the strait,” Umer Karim, a researcher on Gulf security at the University of Birmingham in the U.K., told the Journal.

“But invariably this new scheme will create a geographical dependence of some of the involved countries over other ones and thus creating a dependency which may complicate some bilateral relationships and thus will remain challenging to implement,” Karim said.

Trade routes in the Red Sea also are being threatened by Iran-backed Houthi rebels, the Journal reported. The Houthis claimed responsibility for a Saturday attack on a jet-fuel storage site near the airport in Riyadh, Saudi Arabia’s capital.