Kuwait inks $16 billion pipeline deal with US firms

Kuwait signed a $16 billion deal partnering with three North American investors to invest in its domestic and export pipeline network, making it the largest single direct foreign investment in Kuwait’s history.The Gulf nation’s state-owned Kuwait Petroleum Corporation signed the lease-and-leaseback agreement with Canada’s Brookfield Asset Management and the U.S.’s Blackstone and KKR. The three companies and the KPC subsidiary, Kuwait Oil Company, will form a joint venture in Kuwait that will lease usage rights for 13 KOC crude oil pipelines spanning nearly 200 miles.A drive from one side of Kuwait to the other — Al-Nuwaiseeb in the south to Abdali in the north — is just 136 miles. “Under the terms of the agreement, the JV will grant back to KOC the exclusive use, operational and maintenance rights in the pipeline assets for a 20.5-year period, in exchange for a volume-based tariff,” KPC wrote in a statement.KOC will retain operational control of the pipelines with a 51% ownership stake, while the other JV investors will own 49%.The deal doesn’t involve the construction of any new pipelines, but will raise significant capital to maintain, upgrade, and hypothetically build out new ones in the future.KPC said the JV is expected to generate “upfront proceeds of $7.85 billion for KOC upon closing,” capital which will be used to boost crude oil production and economic diversification efforts. Any boost in oil production would require the construction of more pipelines.The undercurrent of the war with Iran played heavily in KPC’s announcement, saying the deal was “among the first major inward investments in the Arabian Gulf region since the onset of recent tensions,” and used it as proof of “the sustained confidence of global institutional investors in Kuwait and KPC.”Kuwait is the single most vulnerable nation to oil disruptions from the war with Iran, as all of its oil shipments pass through the Strait of Hormuz. It has also become the foremost target of Iranian attacks after the lopsided targeting of the United Arab Emirates ceased in May, and has been hit in nearly every round of Iranian attacks since.Kuwait has formed a close bond with the UAE during the war, one of the countries that can transport oil and gas overland across the Strait of Hormuz. Hussain Abdul-Hussain, a research fellow at the Foundation for Defense of Democracies with a focus on the Gulf, speculated to the Washington Examiner earlier this month that Kuwait would invest heavily in new pipelines through the UAE to allow it to ship some of its own oil through the country.The Monday deal lines up perfectly timing-wise with looking to raise capital for such an investment.“I think the Emiratis will do their best to help out the Kuwaitis. The two governments have become really close over the past year, and especially in the four and a half months since the start of the war with Iran,” he said on July 14. Hussain reasoned that the UAE is likely to help the Kuwaitis send some of their oil through the extended pipeline, sparing some capacity for Kuwaiti use in exchange for royalties, then push through the third pipeline.“If Hormuz continues being like this … I wouldn’t be surprised if … the Kuwaitis are now in talks with the Emiratis to build this pipeline,” Hussain said.HOW LONG CAN IRAN PLAY ITS ENERGY CARD?Neighboring Iraq is also heavily affected by the Strait of Hormuz blockade and doesn’t have enough room in its sparingly few pipelines to the Mediterranean to accommodate Kuwaiti oil.The large Western investment in Kuwait’s oil infrastructure also serves as a much-needed show of confidence as it struggles to weather continued Iranian attacks.