Global oil markets are facing renewed supply disruption fears as Yemen's Houthi rebels escalate threats in the Red Sea, directly challenging Saudi Arabia's crucial alternative export route.

In the context of the ongoing Iran war, which has persistently disrupted global oil supplies, Saudi Arabia has relied heavily on the Red Sea shipping lane as a substitute outlet to bypass the Strait of Hormuz and maintain its crude exports. However, the fragility of this detour strategy has been starkly exposed. The Iran-backed Houthi group has intensified threats to Red Sea shipping, resuming attacks on vessels near the Bab al-Mandab Strait in early July and, on July 20, directly announcing an immediate maritime blockade against Saudi Arabia.

Strategic Significance of the Red Sea Route

The combined route formed by the Suez Canal, the Red Sea, and the Bab al-Mandab Strait constitutes the shortest sea passage connecting Europe and Asia. Before the Houthi attacks began in 2023, nearly 10% of global seaborne trade passed through the Bab al-Mandab Strait annually. According to data from Clarksons Research and the PortWatch platform developed jointly by the International Monetary Fund and the University of Oxford, this proportion plummeted to around 3% last year due to multiple waves of attacks.

To avoid the risk, numerous shipping operators have been forced to reroute around the southern tip of Africa. This detour not only adds thousands of nautical miles but can also extend a single voyage by up to two weeks. Despite this, the Bab al-Mandab Strait remains a vital conduit for oil, gas, and other commodities exported from the Middle East, Asia, and Russia. During the Iran war, as Saudi Arabia increased its use of this waterway to sustain exports, traffic volumes have even seen a recovery.

Potential Impact on Oil Markets from Fresh Attacks

If the scope of attacks widens, oil exports from Saudi Arabia's Red Sea port of Yanbu would be the first to be impacted. Saudi Arabia has long positioned Yanbu as a strategic pivot to circumvent the potential closure risk of the Strait of Hormuz, pumping more crude westward via domestic pipelines. In May, daily crude loadings from Yanbu reached 3.65 million barrels, accounting for over half of the country's pre-war export volume.

However, tankers carrying these cargoes to Asian customers must navigate the narrow Bab al-Mandab Strait and pass Yemen's rugged coastline—an ideal cover for Houthi attacks. Should tankers be unable to transit this route due to safety risks, oil prices could surge sharply.

Since 2022, the Houthis and Saudi Arabia have largely maintained a fragile truce, halting cross-border attacks and Saudi military operations aimed at driving the group from Sana'a. Recently, however, Saudi warplanes struck Sana'a International Airport to prevent an Iranian plane, carrying a Houthi delegation returning from Tehran after attending the funeral of Iran's late Supreme Leader, from landing. Following the strike, the Houthis vowed to maintain flights between Sana'a and Tehran and warned they would disrupt Saudi airports until what they termed the "siege" on Sana'a airport was lifted.