By Youssef Saba and Marwa Rashad

DUBAI/LONDON, July 7 (Reuters) - Saudi Arabia is considering increasing the capacity of its crude oil pipeline to the kingdom's west coast on the Red Sea, which would enable it and possibly its neighbors to transport larger quantities of oil without having to cross the Strait of Hormuz, five sources familiar with the matter said.

Sources said the kingdom is holding preliminary talks with some of its neighbors about a possible expansion of pipeline capacity by up to 2 million barrels per day.

It remains unclear whether Aramco's planned pipeline capacity increase will involve upgrading existing infrastructure or constructing a new pipeline. One source indicated that the increase will include a second, smaller pipeline for transporting refined petroleum products.

The East-West pipeline was built in the early 1980s and became important after the outbreak of the Iran war in February and the resulting halt to shipping through the Strait of Hormuz.

The pipeline can transport up to seven million barrels per day of crude to the port of Yanbu on the Red Sea. The CEO of state-backed Aramco said in May that about two million barrels per day feed refineries on the west coast, while about five million barrels per day are allocated for export.