Iraq and Syria sign agreement to restore oil pipeline that would provide alternative to Strait of Hormuz

Iraq and Syria signed an agreement on Friday to rebuild an oil pipeline that would provide an alternative to the Strait of Hormuz.

Baghdad and Syria inked the deal at a Chamber of Commerce summit in Washington D.C. on U.S. investment in Iraq. Energy Secretary Chris Wright presided over the signing by Basra Oil Company CEO Bassem Abdul Karim Nasr and Syrian Petroleum Company CEO Youssef Qablawi.

"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.

Iraqi Prime Minister Ali al-Zaidi is visiting the U.S. this week. He met with President Donald Trump at the White House on Tuesday.

The pipeline stretches from Kirkuk in northern Iraq to Syria's Mediterranean coast with a nameplate capacity of 700,000 barrels per day, according to the U.S. Energy Information Administration. It has been closed since it was damaged during the U.S. invasion of Iraq in 2003.

Iraq, the second largest oil producer in OPEC, has suffered heavily from the disruption to tanker traffic in the Strait of Hormuz during the U.S.-Iran war. Baghdad is reliant on its southern port city of Basra on the Persian Gulf due to limited pipeline options to bring its oil to global markets.

Iraq's oil production fell more than 50% to about 1.9 million barrels per day in June compared to around 4.2 million bpd in February before the U.S. and Israel attacked Iran, according to OPEC data.

Several Gulf states want to expand pipeline capacity to reduce their dependency on Hormuz. The United Arab Emirates is building a second pipeline to the Port of Fujairah on the Gulf of Oman, which would double its export capacity outside the strait.

Saudi Arabia is considering expanding its pipeline to the Red Sea by 2 million bpd, people close to the matter told Reuters last week.

Analysts have cautioned that pipelines can act as a hedge against geopolitical risk in Hormuz, but they do not resolve the underlying threat posed by Iran to energy infrastructure in the region.

"The problem isn't the waterway," Bob McNally, founder of Rapidan Energy, told CNBC's "Power Lunch" on Monday. "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."