How a Houthi Red Sea Blockade Could Disrupt Oil Prices and Global Supplies
Potential Impact of a Houthi Blockade on Global Oil Markets
By Ahmad Ghaddar and Arathy Somasekhar
LONDON/HOUSTON, July 20 (Reuters) - A successful effort by Yemen's Houthis to shut the Bab el-Mandeb Strait would strike at one of the world's most important oil shipping routes, potentially triggering a fresh surge in crude prices, disrupting fuel supplies and adding to strains on the global economy.
Escalating Tensions and Oil Price Volatility
Yemen's Iran-aligned Houthis on Monday declared a naval blockade against Saudi Arabia, its military spokesperson said. A closure of the Red Sea's southern gateway would remove a critical alternative route for the kingdom to the Strait of Hormuz and intensify fears of shortages.
Market Reactions and Analyst Insights
"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 consultancy Energy Aspects.
"The Houthis resuming maritime attacks and effectively shutting the Bab el-Mandeb would certainly qualify."
Oil rose less than 1% after the Houthi statement to trade around $89 a barrel. Hopes of Iran and the United States resuming peace talks had earlier weighed on prices. Oil futures have peaked at $126 this year - below 2008's all-time high of $147.
Asian Refiners and Global Shipping Disruptions
Delays and Rerouting of Oil Shipments
The Bab el-Mandeb connects the Red Sea with the Gulf of Aden and is a key route for crude and fuel shipments moving between the Middle East, Europe and Asia. Since Houthi attacks on shipping began in 2023, many vessels have already rerouted around Africa, adding costs and delays to global trade.
A full closure would have the biggest immediate impact on Saudi crude exports from the Red Sea port of Yanbu. Matt Smith, commodity research director at Kpler, said Asian refiners receiving those barrels could face delays of around a month as tankers are forced to sail 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."
Logistical Bottlenecks and Supply Chain Strains
Bronze estimated that more than 3 million barrels per day of Saudi crude currently shipped via the Red Sea to Asia could be forced onto much longer routes. The disruption would create logistical bottlenecks because fully loaded VLCCs cannot transit the Suez Canal while capacity on Egypt's SUMED pipeline, which links the Red Sea and Mediterranean Sea, is fixed.
Saudi Arabia has shipped on average over 4.5 million bpd of crude and fuel from Yanbu since April, about 70% of which went to Asia, Kpler data shows.
Broader Economic and Market Implications
Risks to the Global Economy
The impact would extend far beyond oil markets, said John Paisie, president of consultancy Stratas Advisors.
"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.”
Price Spikes and Increased Costs
The immediate oil market reaction would likely be another jump in crude prices as refiners compete for available supplies, analysts said. Paisie said oil prices could climb back above $115-$120 a barrel, while freight and insurance costs would also rise as ships take longer routes around Africa.
European diesel refining margins surged to a record above $65 a barrel on Friday and remained near that level on Monday. Supplies of diesel and jet fuel from Asia and the Middle East to Europe typically transit the Bab el-Mandeb.
(Reporting by Ahmad Ghaddar and Robert Harvey in London, and Arathy Somasekhar in Houston, editing by Alex Lawler and Sanjeev Miglani)
