Oil jumps as Houthi warning targets Saudi Red Sea route

Oil prices climbed fast Tuesday after Yemen’s Houthis warned shipping companies to steer clear of all Saudi Arabian ports, according to multiple reports cited by MarketWatch.

The warning raised the stakes for a Saudi export route that has helped keep crude moving while the Strait of Hormuz has been badly disrupted by the U.S. and Israel’s war with Iran. Brent and West Texas Intermediate futures rose about 3% each Tuesday, MarketWatch reported, taking their July gains above 20%.

The Iran-backed Houthis, who control part of Yemen, announced a maritime blockade against Saudi Arabia on Monday, MarketWatch reported. Oil traders initially reacted mildly because it was unclear whether the group meant to target only Saudi ships. By Tuesday, the warning had widened to all shipping companies using Saudi ports, according to the reports.

A Red Sea workaround under pressure

Saudi Arabia has been using Yanbu, its Red Sea port and industrial hub, to export some crude while Hormuz traffic remains under strain. Oil shipped from Yanbu can move north through the Suez Canal toward Europe, or south toward Asia through the Bab el-Mandeb Strait at the entrance to the Red Sea.

That southern route passes near territory held by the Houthis, who have attacked shipping in the area before. Maritime intelligence company Kpler said two ships had already turned around in the Red Sea because of the threats, according to MarketWatch.

Aarathi Krishnan, chief executive of Raksha Intelligence Futures, told MarketWatch that Bab el-Mandeb is now the “second global energy chokepoint on the table.” She said a closure there would add to the shock from Hormuz in a system already under strain.

Krishnan also said the threat goes beyond “saber-rattling,” pointing to the Houthis’ past attacks on commercial shipping. In late 2023 and early 2024, the group hijacked a commercial vessel in the Red Sea and attacked dozens of other ships, prompting container-shipping companies to suspend Red Sea routes, MarketWatch reported.

Saudi export limits come into focus

Saudi Arabia had been exporting about 4 million barrels a day through Yanbu, which sits at the end of the East-West pipeline connecting the kingdom’s coasts, according to MarketWatch.

Robin Mills, chief executive of Dubai consultancy Qamar Energy, told MarketWatch the pipeline can carry about 7 million barrels a day, though roughly 2 million barrels go toward Saudi domestic demand. Because of port limits, he said Yanbu’s likely sustained export ceiling is around 4 million to 4.5 million barrels a day.

Michael Haigh, global head of fixed-income and commodities research at Societe Generale, told MarketWatch that Yanbu exports have been one of the ways the oil market has adjusted to the effective closure of the Strait of Hormuz.

Haigh said the Houthis could make a blockade work through fear alone, as ship captains avoid risk and insurance costs rise. If traffic through Bab el-Mandeb stops, he said global crude inventories would fall sharply and prices would rise until the disruption is resolved.

Hormuz flows have already fallen

The U.S. and Iran exchanged attacks for a 10th straight day late Monday, MarketWatch reported. The U.S. military said its latest strikes targeted Iranian military sites, missile launch locations and drone launch sites to reduce Iran’s ability to attack commercial vessels moving through the Strait of Hormuz.

Analysts at J.P. Morgan said in a client note cited by MarketWatch that crude flows through Hormuz had dropped to 5.1 million barrels a day from 12.5 million earlier in the month. Iranian exports accounted for 1.7 million barrels a day of the remaining flow, the analysts said.

J.P. Morgan analysts said most ships were using routes approved by Iran or other clandestine routes, while traffic through Omani waters had effectively dried up.

The Houthi threat comes amid the long Yemen conflict and the group’s dispute with Saudi Arabia. The Houthis have accused Saudi Arabia of bombing the main international airport in Yemen’s capital, San’a, to stop a plane carrying a Houthi delegation from returning from the funeral of Iran’s Ayatollah Ali al-Khamenei, according to MarketWatch.

This story draws on original reporting from MarketWatch.