Analysis: The repercussions of Houthi control over Bab al-Mandab and the global oil supply crisis

In one night, the Houthis invaded vast areas of land along the Yemeni coast on the Red Sea, and took control of the region all the way to the tip of the Arabian Peninsula at the Bab al-Mandab Strait. They also seized the strategic island of Mayon in the middle of the strait.

American analyst Greg Brady says that the collapse of the Yemeni government forces was "astonishingly easy," which allowed the Houthis to seize huge amounts of equipment provided by Saudi Arabia, and sparked comparisons with the defeat of the Iraqi army at the hands of ISIS in Mosul in 2014, and the collapse of Bashar al-Assad's forces in December 2024.

Bridi, a researcher on Middle East affairs at the American Center for the National Interest, added in an analysis published by the American magazine The National Interest that it appears that the Houthi missile strikes that targeted the Saudi pipeline linking the east and west of the country also led to the cessation of work on this vital artery that bypasses the Strait of Hormuz, “at least for the time being.”

Oil markets at that time were absorbing a report published by the New York Times that showed a sharp decline in the Kingdom’s oil exports, even before the pipeline stopped operating due to Houthi threats to Saudi ships in the Red Sea.

Meanwhile, the Wall Street Journal reported on September 11 that President Donald Trump's inner circle of advisers raised the possibility that the current US strategy - based on a naval blockade coupled with intense economic pressure - would not succeed in forcing Iran to surrender before his term ends in January 2029.

Despite this bleak view of the war, “Trump’s senior aides did not suggest returning to the negotiating table with the U.S. position modified to reflect this reality.” But Trump continued to use the word "surrender" to describe the outcome he expected from US pressure on Iran.

There were no reports of Trump assigning senior officials to develop a more viable negotiating strategy. “The president’s aides seem to believe that the status quo, represented by limited war and economic pressure, can continue for however long it takes, even if responsibility for it passes to his successor in the presidency... Vice President J.D. Vance also appears to adopt a somewhat different view, but he does not appear ready to confront Trump on this issue, as he lacks decision-making authority.”

Analyst Brady confirms that this matter should raise alarm bells in Washington, as at a time when the oil market has begun to recover from the state of reassurance that prevailed during the summer, with Brent crude prices rising sharply on the back of recent news, “many still have a false sense of security because they are not familiar with the quantitative analysis of oil markets.”

Brady pointed out that after the initial shock of the war subsided, a traditional conviction prevailed in the market during the early summer that the crisis with Iran was heading towards a negotiated settlement, and that strategic reserves and commercial stocks would be more than sufficient to absorb the shock.

But it is now clear that “there will be no quick settlement,” and that more than six months of supply losses have led to a significant depletion of both strategic and commercial stocks.

The situation of petroleum product stocks is also worse, with global refining capacity exposed to two major geopolitical blows: the loss of Gulf refining capacity directed for export, which was cut off from usual means of transportation, and the disruption of nearly half of Russia’s refining capacity due to drone attacks from Ukraine.

Diesel is also in short supply, as its average price in America reached $6 per gallon on September 10. Gasoline prices may be more visible to consumers, but economists know that diesel also contributes to inflation.

According to the analysis, all of this makes it “likely that the Federal Reserve will raise interest rates at its scheduled meeting next week, despite President Trump’s repeatedly stated desire to pursue an accommodative monetary policy.”

Brady pointed out that US administration officials have always talked about oil tankers accompanied by American ships and still operating through the “Sultanate of Oman route” through the Strait of Hormuz. However, most in the private sector scoff at the administration's figures, as analysts can track tankers via satellite images even when their transmitters are off.

In addition, the movement of these tankers is limited due to the absence of insurance coverage.” He also pointed out that most of the tankers transporting crude oil through the Strait of Hormuz to the Gulf of Oman are currently owned by national oil companies in the Gulf states, and therefore they can bear the risks, “but private sector tankers will not do that.”

Brady believes that it may be "heresy within the US administration to admit this, but most private sector observers do not expect the quantities of oil leaving the Strait to rise much above their current average levels."

The recent gains made by the Houthis also make the situation worse, “by strangling transport traffic through the Red Sea, as well as closing the pipeline that transports Saudi crude oil to the ports there, at least for the time being. The line will be repaired, but it may be attacked again.”

The continuation of the status quo with Iran is expected to cause oil prices to rise until demand declines enough, which most economists expect to be largely driven by a slowdown in global economic activity.

Outside oil circles, “it may seem that the specter of crude oil reaching $150 per barrel has disappeared, but under these changed circumstances, this is no longer the case.”

Finally, apart from the unsustainable economic situation that would result from the continuation of the status quo for another two years, this would cause much greater damage to the United States’ position in the region.”

With the exception of the UAE, “which still has an alternative pipeline in operation,” the other Gulf states are taking the hit directly. Iraq has diverted some oil flows and restarted them, but it will face an unsustainable financial situation within months. As for Qatar, it has assets, but it generates only very limited revenues from liquefied natural gas or oil.”

Egypt will also be affected by the rise in oil prices and the sharp decline in Suez Canal revenues, “which are extremely important revenues for the state budget.” According to Brady, these are only a few examples, and that if America continues to ignore the suffering of these countries, and prefers to maintain pressure on Iran through the blockade, this will put these relations to a severe test.”

At the conclusion of the analysis, Brady says that the Trump administration “needs a new strategy, after it seemed to realize that the current approach will not succeed within an acceptable time frame, and that it causes significant collateral damage to the United States and its partners.” This file cannot be left "to proceed automatically without intervention."