Houthi Gains in Yemen Threaten Global Energy Supplies

Recent Houthi advances in Yemen, including the capture of the port city of Mokha and control over the Bab el-Mandeb strait, have significantly heightened concerns for global energy markets. While the Houthis do not have the automatic ability to block all shipping, their proximity to this vital trade route with missile systems, drones, and naval assets creates a substantial threat. The timing is critical, as the Red Sea has become a crucial backup for energy exports from the Persian Gulf, especially since the outbreak of the war with Iran. According to the U.S. Energy Information Administration (EIA), oil and petroleum product transit through Bab el-Mandeb surged from 5.4 million barrels per day in late 2025 to 8.1 million in the second quarter of 2026, while traffic through the Strait of Hormuz plummeted. This shift was partly due to Saudi Arabia rerouting exports via the East-West pipeline to Yanbu on the Red Sea coast, creating a new dependency. This pipeline, previously Saudi Arabia's insurance policy against disruptions at Hormuz, was itself attacked on Thursday, halting its operations as a precautionary measure. The Saudi Foreign Ministry attributed the drone attacks to Iraq, which confirmed the launches originated from Maysan province and launched an investigation. While the perpetrator remains officially unidentified, Arab media attributes the attack to Iran-aligned elements. Saudi Arabia now faces simultaneous vulnerabilities at Hormuz, the attacked East-West pipeline, and the increasingly threatened Bab el-Mandeb strait.

This vulnerability is reflected in Saudi oil production figures. The International Energy Agency (IEA) estimated Saudi oil output in August at only 5.97 million barrels per day, a sharp drop from 8.24 million in July, highlighting the gap between theoretical production capacity and the ability to safely market and export oil during wartime. The current price of around $105 per barrel, while profitable per barrel, does not offset the reduced export volumes. This situation, coupled with defense costs, infrastructure repair, insurance, and shipping expenses, could exacerbate Saudi Arabia's projected $44 billion budget deficit for 2026, potentially impacting its Vision 2030 projects. The core issue is not production capacity but the security of export routes, demonstrating that surplus production capacity is insufficient if export pathways are compromised.

Strategically, these events benefit Iran, which is also under pressure and experiencing reduced oil exports. While there is no direct public evidence of Tehran ordering the Houthi takeover of Bab el-Mandeb or the pipeline attack from Iraq, the outcome serves Iran's interests by increasing the cost and risk of oil exports for its rivals. This creates a symmetry where disruptions to Iranian exports via Hormuz are mirrored by increased costs and dangers for Gulf states' exports. The threat is amplified by the fact that these actions can originate from Yemen, Iraq, and other points far from the Persian Gulf. The timing is also significant as Iran and Oman negotiate a new framework for shipping through Hormuz, with Iranian President Ebrahim Raisi linking passage to the cessation of U.S. sanctions. The Bab el-Mandeb situation strengthens Iran's bargaining position but also risks a broader political consensus among the U.S., Saudi Arabia, and Gulf states to act against Iranian-aligned assets if they are perceived as a coordinated pressure campaign. The ongoing instability complicates Oman's efforts to present its deal with Iran as a stabilizing factor for regional shipping.

The Houthis themselves appear to understand the advantage of limited pressure, with their spokesperson stating that shipping is safe for all except Saudi vessels, and claiming 73 ships passed through the strait in two days. This selective threat creates uncertainty without halting all trade, impacting insurance premiums, crew demands, and shipping routes. The IEA notes a significant drawdown in global oil inventories, with total Gulf exports in August at about 13 million barrels per day, less than half of pre-war levels. The situation is more severe for diesel, with net exports from the Gulf falling to 390,000 barrels per day, a quarter of pre-war levels, leading to price surges that threaten inflation. For Israel, while past experience with Houthi attacks showed resilience in imports, the current crisis coincides with a broader oil market disruption. Israel can reroute some shipping to Haifa and Ashdod, but this reduces logistical flexibility and increases reliance on Mediterranean routes. The Eilat-Ashkelon pipeline's value is diminished with less reliable Red Sea access. While Israel's electricity generation is largely gas-based, transportation and industry remain exposed to rising diesel and gasoline prices. A particularly concerning scenario for Israel is the international shipping community's return to the Red Sea while specific restrictions on Israeli trade persist, potentially leaving Israeli ports and trade with a higher risk premium and reduced international incentive to resolve the issue.

Four scenarios are outlined: a rapid return to normalcy with the East-West pipeline fully operational and continued Houthi tolerance for most shipping; a prolonged erosion with ongoing threats and limited disruptions, keeping prices and shipping costs high; a severe scenario involving a deeper connection between fronts, failed Hormuz negotiations, expanded attacks on Saudi infrastructure, and actual disruption at Bab el-Mandeb, leading to significant diesel shortages; and a broad military response, which could reduce the threat to the strait but risks a wider regional war. The core issue is the declining reliability of the entire energy supply system, not just a temporary shortage of barrels.