Key Takeaways:
The Houthi blockade of the Bab el-Mandeb Strait has severed the last viable workaround for Middle Eastern oil flows, pushing crude toward $100 a barrel and threatening to deepen a global energy crisis that has already cut economic growth forecasts.
The Iran-backed Yemeni militia declared a naval blockade against Saudi vessels on Monday, targeting the 14-mile-wide chokepoint at the southern entrance to the Red Sea. The move comes as the Strait of Hormuz — through which 20 percent of global energy flows used to pass — has been largely blocked since the outbreak of war between the United States and Iran on Feb. 28.
"The simultaneous disruption of both Hormuz and Bab el-Mandeb represents a supply shock without modern precedent," said Helima Croft, head of global strategy at RBC Capital Markets. "If that route becomes inoperable, the oil supply disruption becomes more serious and we start talking again about a 'no way out' situation."
Saudi Arabia had rerouted roughly 5 million barrels per day through its Yanbu export hub on the Red Sea since March, more than double prewar levels, with about four-fifths of those shipments transiting through Bab el-Mandeb, according to analytics firm Kpler. Tankers now face a choice: risk the Houthi-declared blockade or add at least four weeks to each journey by crossing the Suez Canal into the Mediterranean and circumnavigating Africa. The largest crude carriers cannot transit the Suez Canal fully laden due to depth restrictions, forcing partial offloading and reloading that further drives up costs.
Brent crude has risen about 30 percent since the war began, trading above $90 a barrel this week — the highest in over a month. European diesel prices and U.S. gasoline have surged roughly 65 percent over the same period, with diesel refining margins hitting record levels as the squeeze on refining capacity intensifies. Ukraine's drone attacks on Russian energy infrastructure have compounded the shortage, forcing Moscow to ban diesel exports.
Demand Destruction Accelerates
The price surge is already reshaping consumption patterns. Global oil demand fell nearly 5 percent in the second quarter of 2026 from a year earlier to 99.1 million barrels per day, according to International Energy Agency estimates. Chinese diesel consumption dropped an estimated 10 percent in May from a year earlier, while gasoline demand declined 5 percent and petrochemical feedstock use slumped 17 percent. In Europe, diesel consumption fell 5.7 percent in May to 4.5 million barrels per day.
The last time a simultaneous chokepoint disruption occurred at this scale was during the 1973 Arab oil embargo, when crude prices quadrupled and global GDP contracted by 4 percent over two years. While today's market has more diversified supply sources, the steady depletion of strategic and commercial reserves over five months of conflict has left the world with far fewer buffers.
World Bank Chief Economist Indermit Gill told Reuters the conflict could cut 2026 global growth to as low as 1.3 percent, from 2.9 percent last year. Asian refineries, which had only recently begun recovering output after the June 17 interim ceasefire, now face renewed supply disruption. China's refiners had slashed processing rates by 18 percent in June compared with the same month in 2025, pushing output to the lowest since March 2020.
India's increased processing of Russian crude offers a partial offset, but the more oil routes are cut off and the longer disruptions persist, the deeper the economic damage could become. With crude on course to breach $100 and fuel shortages spreading, the world's energy crisis is entering a far more damaging phase.
This article is for informational purposes only and does not constitute investment advice.
