Crisis in the Red Sea threatens to worsen global oil and gas shortages

With the Strait of Hormuz still closed, whatever the White House says, the shadow of another crisis with unforeseeable consequences hangs over its main alternative: Bab el Mandeb, the unavoidable gateway to the Suez Canal and a key outlet for Saudi Arabia's oil. The Houthi militias are increasingly close to taking control of the tongue of water that connects the Red and Arabian Seas, and its closure—still potential, not real—threatens to aggravate the global oil and gas drought at the threshold of the cold season in the northern hemisphere.

After several days of holding our breath, the blood has still reached the river this Friday. The Houthi rebels, related to and financed by Iran, took over the port of Moca on Thursday and hours later they also took over the island of Mayun (also known as Perim). Pieces, both, fundamental for the control of southern access to the Red Sea. Hours later, well into the night, Saudi Arabia announced the closure of the only oil pipeline that allows it to bypass Hormuz.

There are close precedents for what a partial closure of Bab el Mandeb may entail. At the beginning of 2024, attacks by these same militias on several oil and LNG tankers forced hundreds of ships to take the only possible detour to reach Europe: the Cape of Good Hope, at the southern tip of the African continent. A route that adds about 6,000 kilometers and about two weeks of navigation - depending on the origin and destination -, with the consequent additional fuel consumption and less rotation of the ships. The result? More inflation just when the world tries to combat the rise in prices caused by the closure of Hormuz, through which before the war a fifth of the crude oil and liquefied natural gas (LNG) consumed by the world passed.

That, from the point of view of consumers. On the sellers' side, if one actor fears that the escalation in Yemen will worsen, it is Saudi Arabia. The largest crude oil exporter on the planet – and second producer, only behind the United States – has weathered the Hormuz storm much more comfortably than its neighbors in the Persian Gulf thanks, in large part, to the redirection of oil through the East-West pipeline and its subsequent exit through the port of Yanbu.

Riyadh was discharging just over a third of its pumping and half of its sales abroad, about 3.5 million barrels a day, through that pipeline. Until this Friday night, when it was forced to decree its closure as a “precautionary measure.”

It is far from clear how close the Houthi offensives have been to the pipeline. In some satellite images, smoke could be seen near the end of the pipeline, near its mouth in the town of Yanbu. And the American network CNN, citing sources from the American army, reports that the tube, more than 1,000 kilometers long, was hit this Friday by drones from Iraq.

Since the start of the war, pro-Iranian militias have struck in several waves the vicinity of the Samref refinery, located at the very mouth of the East-West oil pipeline and which has become one of the largest in the Middle East. “The Saudis have reason to be worried, because the threats are getting closer,” emphasizes Jorge León, head of geopolitical analysis at the Norwegian consulting firm Rystad Energy.

From Yanbu, most of that Saudi oil took – already by ship – the southern route towards Asia. “In recent weeks, however, there were already many ships leaving through Suez [to the north], although it is by no means the most desirable route,” León, a former analyst at the Organization of Petroleum Exporting Countries (OPEC), explains by phone. "That makes transportation very expensive. And although they could sell the crude oil to Europe instead of Asia, the Saudis are most interested in protecting the Asian market."

The outbreak of tension in the Red Sea is already being felt in the volume of ships in the area. "Operators are already adopting different strategies to manage this increased risk," states a report published this Friday by the analysis firm S&P Global Commodities at Sea. "Some ships continue to transit this sea route, but avoiding direct calls at Saudi ports. Others, however, have chosen to avoid this route completely and divert their routes around the Cape of Good Hope, despite the fact that the trip is considerably longer."

A Houthi spokesman assured on Thursday that navigation through the Red Sea and Bab el Mandeb remains “safe and normal” for all ships except “Saudi ones, subject to prior embargoes.” Its operations, it alleges, are defensive and will cease when the blockade against Yemen ends.

Skimpy reserves

The urgency to reopen Hormuz has been at its highest for some time, but the situation in the Red Sea raises it even further. The first meeting between foreign ministers of several Gulf countries and their Iranian counterpart is scheduled for Monday in Salalah (Oman), according to the British newspaper Financial Times. The meeting also coincides with recent progress in the negotiation between Tehran and Muscat to share the future management of the strait that connects the Persian Gulf and the Arabian Sea.

The West does not exactly arrive well equipped for this new setback, one more in this era devoted to shock. At the end of February, when the president of the United States, Donald Trump, and the Israeli prime minister, Benjamin Netanyahu, ordered massive bombings on Iran, the strategic oil and gas reserves were in good health, the best guarantee to prevent the crisis from escalating.

This is no longer the case: the double closing of Hormuz—first by Tehran, then by Washington—has forced a good part of that cushion to be burned. A consumption in record time to which the serious crisis that the Russian energy sector is going through has also contributed: almost half of its refineries are out of action due to the succession of Ukrainian attacks. Now Bab el Mandeb threatens to make things even worse.

In August alone, according to figures published this Friday by the International Energy Agency (IEA, the energy arm of the OECD), global crude oil inventories recorded a drop of 95 million barrels. Since the start of the war against Iran, just over half a year ago, withdrawals have already exceeded 500 million barrels, at a rate of almost three million a day. All of this, despite the fact that in the weeks in which the ceasefire was in force, the reactivation of flows through Hormuz temporarily reduced the pressure on strategic reserves.

The memory of the 'Ever Given'

Oil and gas aside, the renewed Houthi threats on the Red Sea and Suez are also a problem for maritime trade in goods. The Suez Canal is, by far, the most used route to bring products of all kinds (from technology to textiles, machinery and almost any other everyday consumer item) from Asia to Europe.