Houthi Red Sea blockade could trigger another surge in oil prices, experts say

LONDON/HOUSTON – A successful effort by Yemen's Houthi movement to shut the Bab el-Mandeb Strait could disrupt one of the world's most critical oil shipping routes, potentially driving crude prices higher, tightening fuel supplies, and adding pressure to the global economy.

The Iran-aligned Houthis announced a naval blockade against Saudi Arabia on Monday, according to the group's military spokesperson. If the Bab el-Mandeb Strait is closed, Saudi Arabia would lose a key alternative shipping route to the Strait of Hormuz, raising concerns about oil supply disruptions.

Energy analysts said the move could provide another catalyst for higher oil prices following recent market volatility linked to tensions between the United States and Iran.

"After oil prices moved higher on escalating U.S.-Iran tensions last week and the resulting slowdown in Hormuz transits, traders are watching for catalysts that would justify a further rally," said Richard Bronze of Energy Aspects.

"The Houthis resuming maritime attacks and effectively shutting the Bab el-Mandeb would certainly qualify."

Oil prices rose less than 1% after the Houthi announcement, trading at around $89 per barrel. Earlier hopes that the United States and Iran might resume peace talks had eased price gains. Oil futures have reached as high as $126 per barrel this year, still below the record $147 set in 2008.

Asian refiners could face longer delivery times

The Bab el-Mandeb Strait links the Red Sea to the Gulf of Aden and serves as a vital route for crude oil and fuel shipments between the Middle East, Europe, and Asia. Since Houthi attacks on commercial shipping began in 2023, many vessels have already been rerouted around the southern tip of Africa, increasing shipping costs and delivery times.

A complete closure would have its most immediate impact on Saudi crude exports from the Red Sea port of Yanbu.

Matt Smith, commodity research director at Kpler, said Asian refiners receiving Saudi crude could experience delays of about a month as tankers are forced to travel around the Cape of Good Hope.

"The impact is going to be massive in the first month," Smith said. "The biggest impact is going to be on Saudi flows."

Energy Aspects estimates that more than 3 million barrels of Saudi crude shipped daily through the Red Sea to Asia could be diverted onto much longer routes. The disruption could also create logistical challenges because fully loaded very large crude carriers (VLCCs) cannot pass through the Suez Canal, while Egypt's SUMED pipeline has limited capacity.

According to Kpler data, Saudi Arabia has exported an average of more than 4.5 million barrels per day of crude oil and fuel from Yanbu since April, with about 70% of those shipments destined for Asia.

Wider economic risks

Analysts warned that the effects of a prolonged disruption would extend beyond oil markets.

John Paisie, president of Stratas Advisors, said restricting oil shipments through the Red Sea would likely increase both crude oil and refined fuel prices while placing additional strain on the global economy.

"If they really stop and severely hinder those barrels through the Red Sea, that is going to have an impact on oil prices as well as refined product prices," he said. "It undermines the whole global economy. At some point, you could have a global recession."

Analysts said crude prices could rise above $115 to $120 per barrel if supplies remain disrupted. Shipping and insurance costs would also likely increase as vessels take longer routes around Africa.

Meanwhile, European diesel refining margins remained near record highs after climbing above $65 per barrel on Friday, reflecting concerns over fuel supplies. Diesel and jet fuel shipments from Asia and the Middle East to Europe typically pass through the Bab el-Mandeb Strait. -Reporting by Ahmad Ghaddar and Robert Harvey in London, and Arathy Somasekhar in Houston, editing by Alex Lawler and Sanjeev Miglani/Reuters