Next Vulnerable Route for Oil Traffic: Red Sea

Iran has already choked off the world's main oil artery—and now it's signaling that the backup route may be in play, too. With the Strait of Hormuz effectively shut after US-Israeli strikes on Iran, Tehran this week warned that the Red Sea and any facilities supporting the US carrier USS Gerald R. Ford are now considered legitimate military targets. Iran has not said it will directly target commercial ships there, NBC News reports. But its Yemeni ally, the Houthi movement, has a track record of disrupting traffic through the Red Sea and the Bab el-Mandeb strait, a narrow passage that normally carries about 10% of seaborne oil.

Houthi leader Abdul Malik al-Houthi recently said his fighters are ready to act "at any moment," though they have so far stayed out of the confrontation. Analysts say that restraint is deliberate. The Houthis, who previously slashed Suez Canal transits by 70% and forced many ships to detour around Africa, appear to be weighing internal debates and Iran's broader strategy. Tehran may be holding back its Houthi "card" for a later phase, according to experts at London-based think tanks RUSI and Chatham House. Even so, the mere threat has again thinned traffic through Bab el-Mandeb, according to maritime intelligence firms, just months after tankers and cargo ships had begun cautiously returning to the Red Sea. For global trade, the timing isn't good.

Iran's closure of Hormuz has already triggered what the International Energy Agency calls the most severe oil market disruption on record. Regional states are trying to compensate: Saudi Arabia has pushed more crude through its Red Sea pipeline, and the United Arab Emirates has ramped up flows to the Gulf of Oman. But those alternate lines can handle only about a quarter of the volume normally moving through Hormuz—and they, too, are vulnerable to Iranian or Houthi action. Should tankers in the Red Sea loaded with Saudi oil come under attack, "I think we (will) then see a material price spike in oil," said Naveen Das, a Kpler oil analyst, per CNN. "Because it basically signals to the market that… all of the sort of escape routes (for oil) are being targeted. ... There's no out."