Houthi Gains in Yemen Threaten Global Oil Supply Routes

Recent Houthi advances in Yemen, including the capture of the port city of Mokha and control over the Bab el-Mandeb strait, have significantly altered the energy market's perception of the conflict. While not granting an automatic ability to block all shipping, these gains place missile systems, drones, and naval assets closer to a critical global trade route. This development is particularly impactful as the Red Sea has become a vital backup for energy exports from the Persian Gulf, especially since the outbreak of 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, coinciding with a sharp decline in traffic through the Strait of Hormuz. 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, intended as a safeguard against disruptions in Hormuz, was itself attacked recently, halting its operations as a precautionary measure. Saudi Arabia's Energy Ministry stated the drones originated from Iraq, which confirmed launches from Maysan province and initiated an investigation. While the perpetrator remains officially unidentified, Arab media attributes the attack to Iran-affiliated groups.

Consequently, Saudi Arabia now faces three simultaneous vulnerabilities: a restricted Strait of Hormuz, an attacked alternative land route, and the Bab el-Mandeb strait under increased Houthi threat. This situation is reflected in Saudi oil production figures, which fell significantly in August. The kingdom's sustainable production capacity far exceeds its current output, highlighting the challenge of safely marketing and exporting oil during wartime. High oil prices, while seemingly beneficial, do not fully compensate for reduced export volumes and increased costs for defense, repairs, and insurance, potentially impacting Saudi Arabia's Vision 2030 projects.

The strategic outcome benefits Iran, which is also facing pressure on its oil exports. The difficulties faced by Saudi Arabia in utilizing alternative routes to bypass Hormuz create a symmetry in the regional energy system. While Iran's export capacity through Hormuz is hampered, the cost and risk of normal exports for Gulf states increase. This pressure can be exerted through proxies in Yemen and Iraq, far from the Persian Gulf itself. The timing is also crucial as Iran and Oman negotiate new shipping arrangements for Hormuz, with Iranian President Masoud Pezeshkian linking passage to the cessation of U.S. blockades and attacks. The Bab el-Mandeb situation strengthens Iran's bargaining position but also risks a broader coalition against Iranian-aligned assets if the incidents are perceived as a coordinated pressure campaign.

The Houthi's selective threat, initially excluding all but Saudi vessels, may be a more effective strategy than a complete blockade, avoiding alienating major trading partners like Europe and China. This selective threat increases insurance premiums, alters shipping routes, and drives up costs even without direct attacks. The International Energy Agency (IEA) notes a significant drawdown in global oil inventories and a drastic reduction in oil and diesel exports from Gulf states, contributing to rising diesel prices in the U.S. and posing an inflationary threat globally.

For Israel, past experience with Houthi attacks suggests some resilience, with imports from Asia showing minimal disruption despite longer shipping routes. However, the current crisis combines shipping disruptions with the oil market crisis, impacting Eilat port and potentially increasing reliance on Mediterranean routes for Haifa and Ashdod. 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 fuel costs. A particular concern is a scenario where international shipping recovers, but targeted restrictions on Israel persist, leaving its trade with a higher risk premium.