The Second Chokepoint: Houthi threats put Saudi's export workaround at risk

The Houthi declaration of a maritime embargo against Saudi Arabia threatens the export route Riyadh has relied on since transit through the Strait of Hormuz became severely constrained. Early disruption remains limited, but the announcement is already changing commercial behaviour.

‍

Market & Trading Calls

• Bullish Brent structure with the Houthi announcement likely to support prompt Brent more than Dubai. Atlantic Basin barrels become increasingly attractive as buyers diversify away from Middle East supply risk, keeping the Brent-Dubai EFS elevated rather than allowing it to retrace.
• Bullish Dubai time spreads as Saudi Red Sea exports are now predominantly destined for Asia. Even limited disruption to Yanbu loadings would tighten prompt availability of medium sour grades into Northeast Asia, supporting Dubai backwardation and regional crude differentials.
• Bullish medium sour crude diffs and tanker freight, as longer voyages, higher war-risk premiums and potential shifts from VLCCs to Suezmaxes would increase transportation costs while supporting medium sour differentials.

Several tankers have altered course or paused voyages while owners assess the security situation, echoing the pattern seen during the 2023-25 Red Sea crisis. The market does not require a full blockade to reprice risk. Higher war-risk premiums, more cautious shipowners and longer routing decisions are likely to emerge well before any meaningful loss of physical supply.

The disruption should remain largely focused on Saudi-linked cargoes rather than all Red Sea traffic. That said, the Kasos vessel, carrying Sudanese Dar blend, has diverted from its route to the Gulf of Aden and came closer to the Sudanese coast again. The Aframax Rodos, carrying Saudi crude to India, reversed course after heading to the Gulf of Aden, while other vessels carrying Yanbu cargoes such as the Cosnew Lake continue to transit normally so far, highlighting that operators are adopting a selective wait-and-see approach rather than abandoning the route altogether.

The timing is particularly significant because transit through the Strait of Hormuz has greatly reduced lately, and because Saudi Arabia has become increasingly dependent on Yanbu. Around 3.5 mbd of Saudi crude has been exported from the Red Sea since April after Riyadh rerouted crude away from Hormuz through the East-West Pipeline, compared with an average of 120 kbd before the conflict. Asia-bound Arab grades now account for the majority of Bab el-Mandeb crude traffic, making Northeast Asian refiners the most exposed to any disruption. The Houthi announcement therefore threatens Saudi Arabia's Hormuz workaround rather than creating an entirely new supply shock.

‍

Southbound transit through the Bab el Mandeb Strait by origin, kbd

Source: Kpler

Northbound flows through the Bab el Mandeb Strait by origin, kbd

Source: Kpler

If such threats are confirmed, the consequences for crude pricing will be driven more by logistics than by outright production losses. Passage through Hormuz has already fallen sharply since early July, while renewed uncertainty around Bab el-Mandeb further strengthens the case for Atlantic Basin alternatives. Brent has therefore outperformed Dubai, with the Brent-Dubai EFS widening towards $10/bbl (Argus), while the Dubai M1-M3 spread has strengthened to above $1.50/bbl as prompt Middle Eastern availability tightens. Rather than narrowing, the EFS is likely to remain elevated as geopolitical risk supports the Brent complex disproportionately and buyers continue seeking barrels outside the Gulf.

The bigger structural challenge is operational. Saudi exports from Yanbu are predominantly loaded on VLCCs, but fully laden VLCCs cannot transit the Suez Canal. Redirecting Asia-bound exports through Suez would therefore require a material shift towards Suezmax liftings or additional lightering operations, increasing freight costs and reducing effective export capacity unless loading efficiency improves significantly. Maintaining current export rates would require materially higher terminal productivity, making logistics the key bottleneck.

For prices, the principal upside risk remains an expansion of Houthi operations beyond shipping. Saudi Arabia's west coast hosts nearly 1.9 mbd of refining capacity and is a critical supplier of diesel into Europe. Any sustained disruption to refinery operations or tanker access would tighten an already undersupplied West-of-Suez middle distillate market while providing further support to medium sour crude differentials globally.

While the situation remains very unclear, selective enforcement rather than a sustained closure of Bab el-Mandeb is more likely for now. The Houthis have demonstrated they can alter commercial behaviour without physically stopping large volumes of crude, and even isolated attacks are likely to keep freight rates, war-risk premiums and prompt crude spreads elevated. A prolonged blockade would require capabilities and political costs well beyond those needed to create market disruption.

‍