Iraq And Syria Have Signed A Deal To Restore A Major Oil Pipeline. It Would Create An Alternative To The Strait Of Hormuz.

Iraq and Syria signed an agreement Friday to rebuild a long-dormant oil pipeline that would give Baghdad a critical export route to the Mediterranean and reduce its dependence on the Strait of Hormuz.

The agreement was signed during a U.S. Chamber of Commerce summit in Washington focused on American investment in Iraq. U.S. Energy Secretary Chris Wright presided over the ceremony, where Basra Oil Company CEO Bassem Abdul Karim Nasr and Syrian Petroleum Company CEO Youssef Qablawi signed the deal.

"There is so much room to drive improvement in Iraq, to raise oil production, to reduce dependencies on hostile neighbors, to bring freedom, prosperity and abundant energy to the nation of Iraq," Wright said before the signing.

The agreement comes during a U.S. visit by Iraqi Prime Minister Ali al-Zaidi, who met with President Donald Trump at the White House on Tuesday. The proposed project would restore the pipeline connecting the oil-rich city of Kirkuk in northern Iraq with Syria's Mediterranean coast. The route has a nameplate capacity of about 700,000 barrels per day, according to the U.S. Energy Information Administration figures.

The pipeline has been out of service since it was damaged during the 2003 U.S.-led invasion of Iraq. Rebuilding it would give Iraqi producers another pathway to international markets at a time when the country's limited export infrastructure has become an increasingly serious economic vulnerability.

Iraq is OPEC's second-largest oil producer, but most of its crude exports currently move through terminals near the southern city of Basra. Tankers departing those facilities must pass through the Persian Gulf and the Strait of Hormuz before reaching global markets.

That reliance has severely exposed Iraq to disruptions caused by the U.S.-Iran war and attacks on commercial shipping and regional energy infrastructure. Iraq's oil production dropped to approximately 1.9 million barrels per day in June, down more than 50% from roughly 4.2 million barrels per day in February, according to OPEC data cited by CNBC. The decline followed U.S. and Israeli attacks on Iran and the subsequent disruption of tanker traffic through Hormuz.

Iraq and Syria are not alone in trying to reduce their exposure. The United Arab Emirates is building another pipeline to the Port of Fujairah on the Gulf of Oman. This project could double the country's capacity to export oil without entering the Strait of Hormuz.

Saudi Arabia is also considering expanding its East-West pipeline by up to 2 million barrels per day, Reuters reported. The system carries crude from Saudi Arabia's eastern production centers to the Red Sea port of Yanbu, allowing some exports to bypass Hormuz entirely.

Still, analysts caution that new pipelines would reduce the region's reliance on Hormuz without eliminating the broader security threat."The problem isn't the waterway," Bob McNally, founder of energy consulting firm Rapidan Energy, told CNBC's "Power Lunch." "It's that Iran can use weapons to attack loading facilities, pumping stations, the end stations, these terminals, and the storage units of these pipelines."

The agreement does not establish a construction timetable or disclose the project's expected cost. Rebuilding a pipeline that has been closed for more than two decades will likely require substantial investment, security guarantees and repairs across both countries.

Even if completed, the pipeline would not fully replace Iraq's Gulf export terminals. Its 700,000-barrel-per-day capacity would represent only a portion of Iraq's production during normal conditions.