Renewed Houthi Threats to Red Sea Shipping Raise Risk of Oil-Supply Shock
Bab-el-Mandeb strait handles 12% of global maritime oil trade; renewed attacks could boost crude prices
Renewed threats from Houthi rebels against commercial shipping in the Red Sea are raising the risk of an oil-supply shock that could push crude prices $5 to $10 higher per barrel, reigniting geopolitical concerns for energy markets already grappling with volatile conditions.
The Bab el-Mandeb Strait, a critical maritime chokepoint linking the Red Sea to the Gulf of Aden, handles approximately 12% of global maritime oil trade, including most petroleum exports from the Persian Gulf destined for Europe and the United States. In the first half of 2023, roughly 9.2 million barrels of oil per day traversed the Suez Canal route that depends on this passage, according to U.S. Energy Information Administration data.
Past Houthi attacks on commercial vessels, which escalated in November 2023, demonstrated how quickly disruption can cascade through global supply chains. By late 2024, vessel traffic through the Suez Canal and Bab el-Mandeb Strait had plummeted by three-fourths as major oil traders and shipping companies rerouted vessels around Africa's Cape of Good Hope, according to analysis from the World Bank and other researchers.
These diversions add two to three weeks to transit times and dramatically increase shipping costs. Historical data shows freight rates on Asia-Europe routes surged by as much as 300% during previous disruption periods, with sustained shipping crises estimated to add 0.7 percentage points to global core goods inflation, according to JPMorgan research.
Brent crude prices maintained support around $80 per barrel throughout 2024 partly due to the Red Sea crisis, which added a geopolitical risk premium of $2 to $4 per barrel, market analysts said. In early January 2025, prices jumped about 4% to a high of $80.75 per barrel as fears over Red Sea trade disruptions intensified.
The economic impact extends beyond energy markets. Industries including automotive, electronics and retail face higher input costs from elevated freight and insurance premiums, which eventually flow through to consumer prices. The longer such threats persist, the greater their cumulative effect on global inflation and corporate margins, economists warn.
Oil companies and traders have been preparing contingency plans, but the unpredictable nature of the Houthi threat makes it difficult to price the risk accurately. The Biden administration has been working with international partners to ensure freedom of navigation through the waterway, though military options remain limited without risking broader escalation in the region.
For now, traders are watching for any signs that shipping companies might once again alter routes or that insurance costs are climbing. The Bab el-Mandeb Strait's position as the fourth-largest shipping chokepoint globally means any sustained disruption would have immediate repercussions for energy markets and inflation expectations heading into 2025.