Spectre of Houthi attacks returns to haunt Saudi oil

• Worry over Red Sea as Houthis join war
• Saudi port of Yanbu vital to oil supply
• Prospect of costlier insurance

The risk of Houthi attacks in the Bab al Mandab Strait at the mouth of the Red Sea has returned to trouble Saudi oil exports.

Any such action could cause a spike in already-inflated oil prices, as the Houthis have said “our fingers are on the trigger”. 

The Iran-backed Yemeni militia on Saturday made its first foray into the conflict between the US-Israeli coalition and Iran, firing missiles at what it said were “sensitive Israeli military sites” in southern Israel, according to a Houthi spokesperson.

Israeli forces, already engaged in conflicts in Iran and south Lebanon, threatened to respond. “We are preparing for a multi-front war,” an Israeli military spokesman said.

Analysts warned that if the Houthis fully entered the Iran war, they could close Bab al Mandab, which has become a vital outlet connecting Saudi west coast oil ports to buyers in Asia.

“The risk of renewed attacks on shipping is elevated,” said Nawaf Obaid, senior research fellow at King’s College London.

So far, the Houthis have indicated they have no intention of shutting Saudi Arabia’s oil trade, telling the Lloyd’s List maritime news service that they “see no reason” to prevent exports from passing through the strait.

No attacks on shipping have occurred in the strait for six months. The Houthis, who began targeting vessels in 2023 in response to Israel’s assault on Gaza, last fired on a ship in September last year, when they struck the Dutch-flagged Minervagracht.

Saudi Aramco, the state-controlled oil giant, is pumping record amounts of crude from eastern oilfields to Yanbu on the western Red Sea coast, making available 5 million barrels per day for export, roughly 70 percent of its total pre-war shipments. 

Following Saturday’s assault, there are concerns that such exports could be threatened and the supply of oil to world markets further constrained.

“The Houthis are moving from signalling to executable maritime positioning,” Obaid said. “Their capabilities remain limited, but they are still sufficient to disrupt shipping, raise insurance costs, force rerouting and require greater naval protection.”

Eyes on Yanbu

Traffic through the strait has remained at around half of pre-2023 levels, according to the International Monetary Fund’s Port Watch. Many ships still sail around Africa rather than risk Houthi missile launchers in Yemen.

Since war broke out with Iran, though, those shipping lanes have become of increased importance to Aramco. The oil company has moved to exporting crude through its two Yanbu terminals, north of Jeddah. The bulk of exports are destined for Asia, accessible via the Bab al Mandab.

Benchmark Brent crude fetched $115 a barrel on Monday, up around 3 percent.

So far there is no sign of any ship rerouting away from the Houthis, according to Dirk Siebels, analyst at Copenhagen-based Risk Intelligence.

“That means there isn’t much damage in terms of traffic in general,” Siebels said. “There are in any case no indications that the Houthis would target ships which are not already potential targets anyway.”

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If the Houthis expand their targeting to include Saudi oil exports, tankers heading to China and India have the option to take the lengthier route through the Suez Canal and around Africa.

The longer voyage significantly increases costs. Suez Canal fees alone can be close to $1 million for a laden very large crude carrier.

“Obviously that isn’t great for oil exports to Asia,” Siebels said.

There is also a prospect of higher insurance in the Red Sea; brokers are already charging shipowners a premium. 
The risk of Houthi involvement is not yet priced in, said Martin Kelly, head of advisory at EOS Marine, a London-based risk management company. Since war broke out on February 28, Kelly said, rates have been stable.

“They [the rates] are likely to start creeping up this week,” he said.