Houthi attacks threaten to cut off Saudi Arabia’s oil lifeline

Recent Houthi attacks on Saudi oil tankers have prompted Saudi Arabia to indefinitely suspend all oil shipments through the crucial Bab al-Mandeb Strait. This decision follows at least two confirmed attacks on Saudi vessels, including one that caused minor damage to a crude tanker in the Red Sea. The Houthis claim to have forced six ships to reroute, although this has not been independently confirmed. This suspension could significantly disrupt global oil supplies given that around 12% of the world’s trade, including a quarter of global container traffic, passes through this chokepoint.

The Bab al-Mandeb Strait, located at the southern tip of the Arabian Peninsula, links the Red Sea to the Gulf of Aden, making it a vital waterway for Europe-Asia trade. Saudi Arabia has been particularly reliant on this route for oil exports, especially since disruptions in the Strait of Hormuz have limited shipping from the Persian Gulf. In response to the latest threats, Saudi Arabia has begun diverting approximately 4 million to 5 million barrels of oil per day through its East-West pipeline to its Red Sea port of Yanbu. However, analysts at Scandinavian bank SEB note that Yanbu, already handling around 4 million barrels a day, has "almost no slack to reroute around."

The rerouting via the Suez Canal and around the Cape of Good Hope adds substantial time and cost. For example, a voyage from Yanbu to Ningbo more than doubles from approximately 21 to 49 days. Shipbroker Arrow estimates that 2.9 million barrels per day are at risk via Bab el-Mandeb, with South Korea and Japan sourcing significant portions of their imports from Yanbu. The potential for a prolonged disruption has already pushed crude oil prices higher, with oil briefly rising above $95, and analysts like Dan Pickering of Pickering Energy Partners suggesting a full blockade could add another $5 to $10 a barrel, pushing prices over $100. The broader concern is that an effective Houthi blockade could open a new front in the war with Iran, potentially requiring US military intervention.