The government of Dubai in the United Arab Emirates (UAE) is said to be studying plans to build a canal which would allow Very Large Crude Carriers (VLCC) and freight ships to bypass the Strait of Hormuz.
The proposed 180 km canal would run from Dubai on the northern coast of the emirates to Fujairah on the east coast, Dow Jones reported.
About 40% of the world's oil, or some 17 million barrels per day, are currently transported through the Strait of Hormuz.
Iran has repeatedly threatened to disrupt oil tanker traffic through the narrow seaway if Israel or the US were to attack its nuclear facilities, a major factor in driving up oil prices in recent months.
"Iran has clearly stipulated its intention to close the Strait of Hormuz in case of a military conflict in the region," Mustafa Al Ani from Dubai-based think tank Gulf Research Centre was quoted saying.
The costs of such a project, estimated at around $200 billion, could prove prohibitive even for Dubai, famed for a number of vast construction projects including its three palm-shaped islands and prestigious buildings.
Building the canal would be a monumental task, crossing the Hajar mountains with a network of locks.
But observers say other Gulf oil producers, such as Saudi Arabia, Kuwait and Iraq, might be persuaded to contribute to the Dubai canal project.
"It would definitely ease market concerns and would lower the insurance premium currently paid by tankers passing through Hormuz," Manoucheher Takin, senior analyst at the Center for Global Energy Studies in London told Dow Jones.
"It's not certain if the benefits would justify the costs," Takin noted.
Increased use of pipelines might be a more cost-effective alternative to Hormuz.
Abu Dhabi, another of the emirates, is currently building a 1.5 million barrels per day capacity pipeline link from its oil producing fields to Fujairah, where it will feed an export refinery.
More pipelines would be needed if other Gulf states dependent on oil exports via the Strait of Hormuz were to find alternative export routes.
Fujairah has built up a position as one of the world's top three bunkering hubs thanks to its location, servicing oil tankers which anchor there before they sail north through the Strait of Hormuz to pick up crude oil cargoes.
The Port of Fujairah has just announced the signing of a deal allowing it access to a $245 million credit line which it will use to expand the port's infrastructure.
Dubai is the biggest container port in the Middle East.
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