Houthi rebel forces advanced along Yemen’s western coast last week, capturing the strategic Red Sea port of Mokha, followed by Dhubab and Perim Island, which lies at the mouth of the Bab al-Mandab Strait. This narrow waterway connects the southern Red Sea to the Indian Ocean and serves as a critical chokepoint for global maritime trade, including significant energy shipments.
The Houthis, who receive support from Iran’s Islamic Revolutionary Guard Corps (IRGC), now effectively control a gateway vital for oil and gas transportation. Their recent territorial gains pose a direct threat to shipping lanes, compounding existing disruptions in global energy markets.
The developments come amid heightened tensions following the United States’ increased confrontation with Iran. After former U.S. President Donald Trump’s administration initiated aggressive measures against Tehran, including targeted strikes and economic sanctions, Iran has responded by extending its influence through proxy groups such as the Houthis in Yemen and Shiite militias in Iraq. This has resulted in recurring attacks on critical energy infrastructure, including drone strikes targeting the Saudi East-West oil pipeline, forcing the shutdown of key pumping stations for several weeks and severely limiting Saudi Arabia’s oil export capacity.
Earlier this week, the benchmark Brent crude oil price nearly reached $110 per barrel, marking its highest point since May before moderating slightly. Saudi Arabia’s state-owned oil company, Aramco, informed European refineries that it would suspend deliveries next month, reflecting tightening supply conditions. Rising crude prices have driven up the costs of refined petroleum products like jet fuel, petrol, and diesel globally.
Saudi Arabia’s Crown Prince Mohammed bin Salman reportedly requested military assistance from the U.S. to counter the expanding Houthi influence. However, the Trump administration declined direct intervention, mindful of the Houthis’ resilience despite previous U.S.-led air campaigns in Yemen. Saudi military efforts alone have been unable to dislodge the Houthis, who control large swaths of northern Yemen, including the capital, Sanaa.
The energy supply challenge is further exacerbated by the conflict in Ukraine, where Ukrainian drone attacks have disabled approximately one-third of Russia’s diesel refining capacity. Russia, in turn, has been compelled to import diesel from India, contributing to elevated global fuel prices. Additionally, Russian drone strikes targeting Ukrainian grain facilities and Black Sea export routes have impeded agricultural exports from one of the world’s largest grain producers, putting upward pressure on global food prices.
These converging crises are fueling inflationary risks worldwide. The Bloomberg Commodity Index has surged 48% this year, translating into rising consumer prices. Inflation in the United Kingdom has climbed above 3%, with anticipations of further increases. Europe faces a precarious winter with gas reserves at historic lows, likely driving energy costs higher. The United Kingdom’s energy regulator, Ofgem, forecasts a potential 25% increase in its energy price cap starting January.
Central banks are responding to inflationary pressures by adjusting monetary policy. The European Central Bank and the U.S. Federal Reserve have both raised interest rates recently, while the Bank of England has paused but is expected to follow suit.
The combined impact of disrupted energy supply lines through the Strait of Hormuz and Bab al-Mandab threatens to intensify the global energy crunch. Although Saudi Arabia’s East-West pipeline historically provided a vital alternative route circumventing the Strait of Hormuz, recent attacks have truncated this capacity. With two of the world’s most important maritime chokepoints now under the influence of Iran and its proxies, energy markets remain highly vulnerable.
As these geopolitical and economic pressures mount, analysts warn of a challenging winter ahead, characterized by rising energy and food costs that could reverberate through global markets, imposing financial strains on households and businesses worldwide.