The Bab al-Mandeb Strait, a lifeline for the global economy, is in jeopardy

By Anna Cooban, CNN

London (CNN) — A narrow waterway located at the mouth of the Red Sea between Yemen and Djibouti has provided an escape hatch for a sizeable chunk of the Middle East’s oil. That lifeline is now looking increasingly shaky.

For weeks, Yemen’s Iran-backed Houthi rebels have threatened shipping in the Bab al-Mandeb strait, attempting to open a new front in the war between Tehran and Washington, now in its seventh month.

In the past 48 hours, the Houthis have dramatically tightened their grip on the shipping route, capturing both the port city of Mocha and – according to Yemeni government sources – the strategic Perim Island in the middle of the maritime chokepoint.

The strait has long been a vital artery of global trade, but has become significantly more important since the US-Iran war effectively shuttered the nearby Strait of Hormuz.

In recent months, Saudi Arabia has used it to export millions of barrels of its oil. Without the Bab al-Mandeb strait, less oil can exit the region. It will also need to take much longer routes, fueling inflation by adding delays and costs onto already-elevated shipping rates.

“The Bab al-Mandeb had been a lifeline. Losing that lifeline has been a wake-up call for the (oil) market of how unsustainable the situation now is,” Richard Bronze, co-founder of Energy Aspects, told CNN.

Oil flows ‘collapsed’

Before the war, about 20 million barrels of oil transited the Strait of Hormuz each day, representing about a fifth of the world’s supply. Once that waterway closed, Saudi Arabia began re-routing crude along its East-to-West pipeline and unloading barrels at the Red Sea port of Yanbu.

At its peak, around 4.5 million barrels of crude per day were exported from Yanbu, with the bulk – about 3 million barrels per day – exiting via Bab al-Mandeb, according to Bronze.

Saudi crude flows through Bab al-Mandeb “collapsed” to about 400,000 barrels per day in August owing to the Houthi threat and are now even lower, said Bronze.

To avoid the strait, many oil cargoes must take a far longer and more circuitous route to reach Asia, up via the Suez Canal into the Mediterranean, down the western coast of Africa and around its base and then across the Indian ocean – an epic voyage adding about a month’s worth of transit time and pushing up freight costs.

“We’ve seen a lot of refineries in Asia going out and searching for alternatives, so they’re bidding up oil cargoes in other regions, and that is the big driver of why oil prices have been rising so sharply,” Bronze said.

News that the Houthis had captured strategic Red Sea locations helped send oil prices rocketing on Thursday. Brent crude, the global oil benchmark, and WTI, the US benchmark, both rose more than 7% to hit $108 and $103 a barrel, respectively — their highest levels since May.

Johannes Rauball, senior crude analyst at Kpler, said that a confluence of factors – Red Sea shipping disruptions, oil production cuts by Saudi Arabia and Ukrainian strikes on Russian energy infrastructure – had pushed global oil prices past $100 a barrel.

“With no quick resolution in sight and these disruptions set to persist, refiners are increasingly being pushed to secure additional crude, which is pushing crude prices higher,” he told CNN.

Crude is also used to make diesel, which is known as the workhorse fuel for the global economy as it powers trucks, tractors, freight trains and other commercial vehicles. Diesel prices in the United States are up by more than 50% since the start of the war and, on Friday, topped $6 a gallon for the first time, according to data from AAA.

Energy prices are a key driver of broader inflation, which has ticked up in major economies in recent months – raising the specter of interest rate hikes that would, in turn, feed into higher borrowing costs for consumers.

Every vessel ‘a potential target’

Shipping companies are well-practised in avoiding the Red Sea route. however.

In late 2023, the Houthis began attacking commercial vessels passing through the Bab al-Mandeb strait in retaliation for Israel’s war in Gaza. The attacks prompted shipping companies to use the longer route, adding weeks onto journeys and forcing them to spend more on fuel, insurance and seafarers’ wages.

Since then, Peter Sand, chief analyst at freight data firm Xeneta, estimates that the number of vessel transits through Bab al-Mandeb has fallen between 60% and 70%. Transits have also fallen by 46% in the past couple of days following the flare in fighting.

But he does not expect transits to fall to zero, noting that shipping firms are used to operating in high-risk environments.

Still, he said, “every ship going through… represents a potential target.”

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Nic Robertson and Mostafa Salem contributed reporting.