Oman is considering building a facility to store up to 200 million barrels of crude safely outside the Strait of Hormuz amid rising tension in the region over Iran's nuclear plan, the head of a state-run oil investment company said.

The proposed facility would be larger than any other tank farm in the world. Working crude storage capacity at Cushing in the US is around 62 million barrels.

Iran has repeatedly threatened to block the narrow shipping lanes between Oman and Iran through which over a third of all sea-borne traded oil is shipped each day, as tensions with the West over Tehran's nuclear plans have intensified.

Threats to block Hormuz have already spurred the UAE to open a bypass pipeline across the desert to the Gulf of Oman port of Fujairah earlier this year, while Saudi has increased its capacity to export oil from its Red Sea Ports.

Oman is now studying whether there is still enough interest from oil producers and traders to merit building a storage complex on the Arabian Sea coast of south-east Oman.

"We have appointed an advisor to carry out a marketing study for the project," Nasser Al Jashmi, the chairman of the Oman Oil Company (OOC), told Reuters.

"We have regional and international interest but it is too early to name them or give a time frame until our project advisor has submitted a report," Al Jashmi, who is also the undersecretary of the ministry of oil and gas, said.

China is on course to double its strategic reserve capacity to 315 million barrels by 2013, according to US government estimates, but that will be spread across 12 sites built over nearly a decade.

The Omani government could fund the project through the Oman Oil Company, Jashmi said, clawing back the investment by renting storage space at the proposed facility near Duqm to suppliers seeking protection against potential disruptions in the Gulf.

"Duqm is away from the Strait of Hormuz and if a conflict occurs there the storage will have enough oil to last a while to keep supplies going," a source close to the government planning office said.

The idea of building a strategic storage site in Oman is not new. But interest in such a scheme has been revived by escalating tensions between Iran and the West over Tehran's disputed nuclear programme this year.

Non-OPEC Oman produces about 900,000 barrels of crude a day but does not export any of it through Hormuz, so the proposed storage would rely on other producers paying to use it.

Abu Dhabi's International Petroleum Investment Company (IPIC) announced plans in June to build a 230,000 barrel per day oil refinery at Duqm.

But a senior oil industry source said the UAE had no plans to invest in the strategic storage project, although it would be interested in storing some oil there if Oman went ahead with it.

A Saudi industry source said the world's largest oil exporter already has a large amount of storage capacity spread around the world already.

Like the UAE, Saud Arabia might still rent space in the project, but the plan could see more interest from other Gulf oil producers with more limited Hormuz insurance options like Kuwait, Qatar and Iraq.-Reuters