Global oil markets must now factor in two critical Middle East chokepoints, according to Standard Chartered. This assessment follows recent Houthi militant actions targeting Saudi oil tankers in the Bab el-Mandeb Strait. The attacks have significantly escalated risks to global crude supply.
Yemen's Houthi group imposed a maritime blockade against Saudi Arabia, threatening to block Saudi-linked vessels. This move was in retaliation for a decade-long Saudi containment of Yemen and a recent Saudi-backed airstrike. The threat immediately caused Saudi-linked very large crude carriers (VLCCs) to reroute around Africa's Cape of Good Hope, adding up to two weeks to voyages.
This development adds to existing concerns about the Strait of Hormuz, another crucial oil transit point. The dual threat could lead to increased oil prices and significant disruptions in global supply chains. China, a major energy consumer, strongly supports efforts to de-escalate tensions, fearing impacts on its energy security and economy.
Standard Chartered estimates that approximately 7 million barrels per day of oil transited the Bab el-Mandeb Strait before the Houthi attacks. This volume includes southbound crude flows from the Suez Canal and redirected Saudi exports. The Red Sea, Suez Canal, and SUMED pipeline form the shortest export corridor between Asia and Europe.
The bank noted that disruptions along this corridor will ripple through the entire tanker market. War-risk insurance premiums will rise, freight rates will increase, and tanker availability will tighten. Cargo deliveries will also face delays, impacting global supply chains.
If the security situation worsens, Saudi Arabia might be forced to reduce crude production. Its alternative export routes may not absorb the lost capacity. European refiners are likely to be the most affected by any compromise of the Bab el-Mandeb Strait.
European diesel markets are already contending with supply disruptions from attacks on Russian refineries. Additional disruption at Bab el-Mandeb would further tighten the middle distillate market. This would delay shipments of diesel and jet fuel into Europe.
Diversion around southern Africa would extend voyages by 10 to 15 days, depending on origin and destination. This would lengthen inventory replacement cycles for refiners. They might source incremental Atlantic Basin barrels from West Africa, the U.S., or Brazil. This would significantly reshuffle global trade flows and potentially widen regional oil price dislocations.
Clean product tankers, which carry refined oil, would likely be the hardest hit. They rely heavily on Suez transit compared to VLCC crude tankers. Standard Chartered noted that large VLCCs serving long-haul Asia-bound trade often travel around the Cape of Good Hope even in normal conditions.