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Iran-backed Houthis are threatening to choke more oil out of the Middle East, compounding worries about global crude supplies as the U.S. and Iran traded fresh strikes.
The threats escalated on Tuesday, with the Yemeni group, which controls part of the civil-war-ravaged country, warning shipping companies to avoid all Saudi Arabian ports, according to multiple reports on Tuesday.
That puts at risk millions of barrels of Saudi oil that have been reaching markets despite the U.S. and Israel’s war with Iran.
The Houthis imposed on Monday a maritime blockade on Saudi Arabia, their staunch enemy, but it was unclear if the group intended to focus on Saudi ships only, leading to a muted reaction from oil markets that day.
That calm evaporated by Tuesday, as London-based Brent and New York-traded West Texas Intermediate crude futures shot up by 2% each — bringing their July gains to more than 20%.
The Houthis are threatening a major workaround for Saudi Arabia’s crude exports, and one of the cushions that global markets have relied on as they struggled to make up for the near-standstill in the Strait of Hormuz and severely diminished oil flows from the Middle East because of the war.
The kingdom had pivoted to exporting some of its oil from Yanbu, a Red Sea port and industrial hub. The oil headed north through the Suez Canal to Europe, and south to Asia through the Bab el-Mandeb Strait, at the southern entrance of the Red Sea and by Houthi-held territory — where the group has attacked before.
If Saudi vessels get targeted, oil prices could rise quickly and, depending on how long any disruptions last, Brent futures could head towards $100 a barrel, with WTI following closely behind, said Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth.
At least five oil tankers inside or heading toward the Red Sea have reversed course, according to maritime intelligence company Windward.
Bab el-Mandeb “is the second global energy chokepoint on the table,” said Aarathi Krishnan, CEO of Raksha Intelligence Futures. Its closure would compound the Hormuz shock on top of an already stressed system, she said.
“This goes well beyond saber-rattling,” Krishnan added. The Houthis “have already demonstrated both the capability and the willingness to strike commercial shipping,” she said.
In late 2023 and early 2024, the Houthis hijacked a commercial ship in the Red Sea and launched attacks on dozens of other vessels, leading container-shipping companies to halt their Red Sea routes.
“The U.S. is now one strike decision away from having both global energy chokepoints contested simultaneously, and the market, insurance and freight consequences of that scenario are not currently priced in,” Krishnan said.
Saudi Arabia was exporting about 4 million barrels of oil a day through Yanbu, at the end of the East-West pipeline that links the kingdom’s two coastlines.
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The pipeline has capacity of about 7 million barrels a day, but some 2 million barrels flow to support the domestic market. With exports constrained by port capacity, it is likely that 4 million to 4.5 million barrels a day has been Yanbu’s maximum sustained capacity, said Robin Mills, CEO of Qamar Energy, a consultancy in Dubai.
Saudi oil exported through Yanbu is part of the way the world has been adapting to the closure of the Strait of Hormuz, said Michael Haigh, global head of fixed-income and commodities research at Societe Generale.
The Houthis can succeed in their maritime blockade of the Saudis purely through fear, Haigh said. Ship captains won’t want to risk going through the maritime blockade, and insurance becomes very expensive, he noted.
If shipping traffic through Bab el-Mandeb is halted, global oil inventories would “drop dramatically, and crude prices would jump and remain high until a resolution is found,” Haigh said.
Meanwhile, the U.S. and Iran traded attacks for the 10th consecutive day late Monday, with the U.S. military saying that the latest round of strikes aimed at Iranian military centers as well as missile and drone launch sites “to degrade Iran’s ability to continue attacking commercial vessels flowing through the Strait of Hormuz.”
Flows through the strait have fallen to just 5.1 million barrels of crude a day, down from 12.5 million barrels a day earlier this month, analysts at J.P. Morgan said in recent note to clients. Iranian exports represented 1.7 million barrels a day of that total.
Most vessels are now using channels approved by Iran “or other clandestine routes, while traffic through the Omani waters has effectively dried up,” they wrote.
The Houthi threats are part of a long-running dispute with Saudi Arabia amid Yemen’s civil war. The Houthis have accused the Saudis of bombing the country’s main international airport in Yemen’s capital, San’a, to prevent the landing of a plane returning a Houthi delegation from the funeral of Iran’s Ayatollah Ali al-Khamenei.
