The escalation of tensions in the Middle East has sent oil prices surging above $100 a barrel, up 13% in just a few days. The key driver behind this sharp increase is the ongoing blockade threat at Bab al-Mandab, a vital waterway through which Saudi oil exports are increasingly reliant. With daily volumes reaching 4.1 million barrels, roughly 5% of global oil supplies, any disruption to this route could have far-reaching consequences for energy markets.
The strategic importance of the Bab al-Mandab strait cannot be overstated. Connecting the Arabian Peninsula and the Horn of Africa, it handles a substantial proportion of Gulf oil exports, particularly those bound for India and China. In light of the recent threats from Yemen's Houthi militias, Saudi Arabia has already rerouted 75% of its usual volumes via a pipeline to the Yanbu export terminal on its west coast, channeling these volumes through the Red Sea and subsequently the Bab al-Mandab.
This renewed focus on the Bab al-Mandab comes after a period where traffic through the strait collapsed during the Gaza war due to Houthi strikes on vessels. Shipping companies had reportedly been considering a return to the route this summer, almost three years after the initial disruption, but the escalating Gulf crisis has now dashed those plans.
The current situation, combined with the US-Iran ceasefire ending, has seen the Brent crude benchmark climb by more than a quarter, putting the market on track for its largest monthly gain since March 2022. Jorge León, head of geopolitical analysis at Rystad Energy, warns that if the Hormuz remains largely closed and the Houthi threat in the Red Sea intensifies, the risk of a substantial rebound in oil prices would be considerable.
A senior Houthi official has even warned that their actions could cause oil prices to 'skyrocket to $200 a barrel' – a prospect that has prompted Saudi Arabia's military to state that all Houthi threats against transiting vessels will be dealt with swiftly and decisively. The implications for the global economy are significant, with market analysts predicting potential price hikes of up to $120 a barrel or more in the coming weeks.