Pakistan Brokers Hormuz Diplomacy as Saudi Pipeline and UN Mechanism Offer a Partial Lifeline

In a flurry of weekend diplomacy that offered the clearest signal yet of a potential off-ramp from the Iran oil crisis, Pakistan convened senior delegations from Saudi Arabia, Turkey, and Egypt in Islamabad on Sunday — with the Strait of Hormuz reopening proposals at the top of the agenda. Simultaneously, a Saudi-operated overland pipeline began pumping a record 7 million barrels per day of crude oil westward to Red Sea terminals, bypassing the blocked strait entirely. The developments came as the United Nations moved to establish a formal mechanism to safeguard Hormuz trade, and as the Pentagon was reported to be preparing for weeks of ground operations in Iran.

The combination of signals — a nascent peace track, an infrastructure bypass, and international institutional engagement — gave oil markets their most substantive diplomatic news flow since the war began on February 28. Yet analysts cautioned that the fundamental supply disruption remains intact, and that Iran's internal fissures over negotiations could derail any deal quickly.

Pakistan Steps Up

Pakistan has positioned itself as a credible mediator, sharing borders with both Iran and Afghanistan, and maintaining working relationships with Saudi Arabia, Turkey, and Egypt — the three Sunni-majority heavyweights whose economic interests are being directly hammered by the war's energy shock.

Pakistani Prime Minister Shehbaz Sharif's office confirmed that Iran's President had communicated through the talks that "trust is needed" before serious negotiations can begin. The statement, though cautious, represented the first direct Iranian engagement with a multilateral diplomatic framework since Tehran's military council vetoed a 15-point peace plan proposed by the Trump administration earlier this month.

Separately, Reuters reported that Pakistan was also facilitating a channel through which Iran could present its minimum conditions for a Hormuz reopening without formally entering into direct talks with the United States — a face-saving mechanism that some regional diplomats believe is essential to any durable arrangement.

The Saudi Pipeline: A Partial Bypass

Bloomberg News reported Saturday that Saudi Arabia's East-West Crude Oil Pipeline — the Petroline, running 1,200 kilometers from the Eastern Province to the Red Sea port of Yanbu — is now operating at a record capacity of 7 million barrels per day. The pipeline's theoretical maximum is 8 million bpd.

This is a significant development. Before the war, roughly 20% of global oil supply — approximately 20 million bpd — transited through the Strait of Hormuz daily. Saudi Arabia alone exported around 6 to 7 million bpd through the strait. If Riyadh can route the bulk of its exports overland to Yanbu and then onto tankers heading through the Red Sea and Suez Canal, it effectively bypasses the blockade for Saudi volumes.

The catch: this only covers Saudi Arabia. Kuwait, the UAE, Iraq, and Qatar have no equivalent pipeline infrastructure at scale. The UAE has a partial bypass pipeline (the Abu Dhabi Crude Oil Pipeline to Fujairah on the Gulf of Oman), but it can handle only about 1.5 million bpd — a fraction of total UAE exports. Qatar's LNG — representing roughly 20% of global liquefied natural gas supply — has no land bypass at all.

Two India-bound LPG tankers did successfully transit the Strait of Hormuz over the weekend, India's government confirmed, suggesting Iran may be selectively allowing certain vessels through. But market participants are treating this as tactical noise rather than a strategic shift, given that broader commercial traffic remains effectively halted.

The UN Mechanism

The United Nations Security Council voted on Saturday to establish an emergency coordination mechanism aimed at safeguarding commercial transit through the Strait of Hormuz. The mechanism — backed by the European Union and non-aligned nations including Indonesia, India, and South Korea — does not authorize military escort operations but creates a formal diplomatic channel for flag-state complaints and incident reporting.

Indonesia, as one of Asia's largest oil importers and a nation with direct exposure to Hormuz disruption through its state energy company Pertamina, was among the co-sponsors of the resolution. Jakarta has been vocal in calling for a negotiated resolution, mindful that prolonged supply disruption feeds directly into rupiah depreciation and domestic fuel subsidy costs.

The rupiah has weakened approximately 6% against the U.S. dollar since the conflict began. Bank Indonesia's foreign exchange reserves, while adequate, are being drawn down faster than at any point since the 2013 taper tantrum.

Pentagon Preparing for Ground Operations

Complicating the diplomatic picture, The Washington Post reported Sunday — citing senior U.S. defense officials — that the Pentagon is preparing contingency plans for weeks of ground operations inside Iran if Trump gives the order. The U.S. president is said to be weighing his options as a 10-day ceasefire on strikes against Iranian energy infrastructure — announced Thursday — plays out through April 6.

The Iran military leadership, which publicly vetoed the 15-point peace plan in late March, reiterated over the weekend that it would view any U.S. ground incursion as a full declaration of war warranting a response targeting American bases throughout the Middle East. With over 30,000 U.S. military personnel in the region and critical infrastructure spread across Qatar, Bahrain, and Kuwait, the escalation risks are not theoretical.

Markets: Relief Without Resolution

Oil markets opened modestly lower in early Asian trading Monday on news of the Pakistan talks and Saudi pipeline capacity, before reversing gains after the Houthis confirmed a second overnight strike against Israel. Brent crude was last quoted around $111.80 per barrel — still elevated, but down slightly from Friday's close of $112.57.

The week ahead will be defined by whether Pakistan's mediation channel can translate into even an informal signal from Tehran that Hormuz talks are possible. Without that, the market consensus is increasingly that crude oil's path to $120 is more likely than a sustained pullback, particularly if the Houthis follow through on threats to restrict shipping through the Bab el-Mandeb.

For Indonesia and the broader emerging-market complex, the stakes could not be higher: the difference between $100 oil and $120 oil, sustained over a quarter, is the difference between a growth slowdown and a full-blown balance-of-payments crisis for the region's most vulnerable economies.