Houthis seize strategic Red Sea islands as analysts warn of impending oil crunch

Yemen’s Houthi militants have seized two strategic islands in the Red Sea, reinforcing the Iran-backed group’s ability to control a key shipping route, as concerns mount that the world is facing a new oil supply crisis.

The seizure of the islands of Greater and Lesser Hanish is the latest in the militant group’s swift advance across Yemen’s Red Sea coast, after the capture of the port of Mokha and Perim island in the Bab al-Mandab strait.

The islands lie 160km north of the strait which is a chokepoint that connects the Red Sea to the open ocean and Saudi Arabia’s key Asian markets.

The speed of the Houthis’ advance has left Yemen’s Saudi-backed government trying to claw back territory captured by the militants in recent days, while Riyadh grapples with attacks on a critical oil pipeline by Iran-allied militants in Iraq.

Threats from Houthis have left Saudi Arabia on high alert, with air alerts flashing across the country daily, while a series of attacks carried out by the militant group using ballistic missiles and drones wounded 13 civilians on Monday.

Nearly 94,000 people in Yemen have fled their homes since fighting between the Houthis and government forces escalated this month, the International Organization for Migration said on Monday. About 200 schools have been converted to shelters in south-western Yemen to absorb an influx of families, the International Rescue Committee said.

More than 2,000 people have reportedly fled across the sea into Djibouti. The Houthi advance puts them just 32km from a US military base in the tiny country on the Horn of Africa, on the other side of the Bab al-Mandab strait.

On Monday, experts warned that the closure of Saudi Arabia’s east-west pipeline – which has been vital for Riyadh to move oil from the strait of Hormuz to the Red Sea export hub of Yanbu – will further pile pressure on its shipments and global oil supplies. Officials have estimated it could take weeks to fully repair it.

“The big question for traders right now is the duration of the east-west outage. Any prolonged disruption and the associated supply loss could easily push prices to the next level higher,” said Tim Waterer, chief market analyst at KCM Trade.

Research company Rystad Energy said on Monday that since late August, an average 2.6m to 4m barrels of oil a day moved through the pipeline and out of the port of Yanbu – a volume it said was now at risk of “disappearing from the market”.

Janiv Shah, vice-president of oil markets for Rystad Energy, noted the recent jump in Brent prices proved the market was already responding to “a significant loss of supply”. Saudi inventories could sustain exports in the coming days, but that could “change quickly,” Shah added.

On Tuesday morning, Brent crude oil rose 1.17% to $106.92 a barrel. The average price of diesel in the US hit $6 per gallon for the first time last week, as the Iran war, combined with Ukrainian attacks on Russian refineries, squeezed supply.

The Houthi leadership has said it is not seeking to block all commercial shipping in the Red Sea, only Saudi-linked ships. Supplies from Saudi Arabia, the world’s biggest exporter of oil, are vital to economies in Africa and Asia, which rely on oil imports from the Middle East and have been hit hardest by the disruption in trade.

Experts say the stock buffers that existed in the system earlier this year, shielding the world from the worst effects of an oil shock by limiting price increases, have now largely disappeared.

Since the war began in February, countries have released some crude stockpiles to the market, and the US also lifted restrictions on oil stored on ships floating at sea from countries under sanctions. Those buffers have now been “played out”, Chevron CEO Mike Wirth said on Friday.

“It’s harder to envision a scenario where prices soften and quickly,” he said. “I think the risks remain to the upside over the next few months.“