Iran’s Yemeni Proxies Put Oil Shipments in Crosshairs

Saudi Arabia halted oil shipments through the narrow strait off the coast of Yemen after an apparent attack on two oil tankers by Iran-backed Houthi militants, underscoring the threat Tehran poses to global energy choke points at a time of growing tension between Iran and the United States.

Saudi officials said Houthi militia targeted two tankers west of the besieged port of Hodeida early Wednesday morning, though it wasn’t clear exactly how the ships were attacked. Sometime later, Saudi Aramco said it would stop sending its oil tankers through the Bab el-Mandeb Strait, the narrows at the southern end of the Red Sea through which about 5 million barrels of oil pass every day.

On Thursday, Kuwait said it would consider halting oil shipments through the strait as well, while the United Arab Emirates, which is allied with Riyadh in the fight against Houthis in Yemen, condemned the attack.

“We are aware of the reported Houthi attack,” said Capt. Bill Urban, a spokesman for U.S. Central Command. “We remain vigilant and ready to work with our partners to preserve the free flow of commerce throughout the region.”

The incident, and the Saudi response, has more to do with the regional struggle between Saudi Arabia and Iran—as well as the rising tensions between Tehran and Washington—than it does with actually stopping shipments of oil. Crude prices barely rose after the attack; Saudi Arabia can ship oil by pipeline to terminals higher up the Red Sea to keep supplying Europe or route tankers around South Africa to avoid Bab el-Mandeb.

But Iran is desperate to find ways to fight back against U.S. efforts to curtail its oil exports after the U.S. withdrawal from the Iran nuclear deal this spring—and choke points such as Bab el-Mandeb and the much more important Strait of Hormuz offer inviting targets.

This month, Tehran renewed its perennial threat to close Hormuz if its own oil exports are affected by U.S. sanctions. Iranian President Hassan Rouhani reiterated that threat over the weekend, saying: “Do not play with the lion’s tail. You will regret it forever.”

Rouhani’s bellicose rhetoric extended to other straits besides Hormuz. While Iran does not border Bab al-Mandeb, its Houthi proxies do, and their ability to interfere with oil shipments through the narrows has been a concern since the war in Yemen started in 2015.

“Hard-liners are calling Rouhani the ‘Lord of the Straits’ these days, not just the ‘Lord of Hormuz,’” said Matthew Reed, the vice president of the energy consultancy Foreign Reports. Those threats have since been endorsed by other elements of the Iranian leadership, including clerics and the Islamic Revolutionary Guard Corps (IRGC), which specifically threatened the Red Sea on Thursday.

“The Iranians are responding to [U.S. President Donald] Trump’s maximum pressure campaign with a maximum threat campaign,” Reed said.

Iranian threats to close the Strait of Hormuz are nothing new. In the 1980s, Iran and Iraq engaged in a “tanker war” in the Persian Gulf that dragged in the U.S. Navy. More recently, at times of tension with Washington, Tehran has periodically vowed to block oil tankers from exiting the narrow strait, whether by mining the channel or attacking tankers with speedboats or land-based missiles.

But actually blocking Hormuz would require a huge effort from the Iranian navy and the IRGC and would invite a swift and overwhelming response from U.S. naval forces.

Bab al-Mandeb offers a lower-risk alternative to push back against international pressure—and, potentially, spike oil prices. Iranian leaders might be calculating that higher oil prices would increase political pressure on Trump and reduce the country’s pain from lowering its volumes of oil exports.

“What makes this attack special is the timing and rhetoric from Tehran,” Reed said. “The Red Sea, where they can pretend a proxy force is freelancing, is somewhere the Iranians think they can maintain plausible deniability, unlike Hormuz.”

Saudi Arabia, for reasons of its own, seems happy to play along. The coalition says the attack was thwarted and only one tanker suffered minor damage. Riyadh has also faced much graver threats to oil shipments in the past. Yet this time, it halted exports through the strait—essentially pulling a Neymar (to borrow a soccer analogy) to call international attention to Iran’s role in the Yemen war.

“There’s no sign that the Houthis are trying to shut down all traffic in the strait or that they even have the wherewithal,” said Richard Mallinson of Energy Aspects, a consultancy in London. “I think much more the Saudis are trying to internationalize the threat. The more they can portray the Houthis as Iranian puppets, that’s a powerful narrative.”

The attack hasn’t yet spooked oil markets; crude prices rose a bit in New York and London but could rise further if continued disruptions in the strait lead to longer shipment times or higher insurance premiums, Reed said.

More importantly, the renewed tensions in critical choke points such as Bab al-Mandeb and Hormuz are a timely reminder that the oil market cannot ignore geopolitical problems forever. In recent years, the oil market has shrugged off nasty events that would have sent crude prices spiking in the past. Oil prices actually fell after the Islamic State took over big chunks of Iraq, while the Syrian war spiraled out of control, while Libya fell apart, while Venezuela imploded, and while the Iranian-Saudi rivalry reached fever pitch.

But these days, big oil producers have little spare capacity to add to the market in case of a big geopolitical shock. Saudi Arabia, Russia, and the United States are pumping at near-record levels, and oil still hovers around $70 a barrel.

Mallinson expects that those tight conditions in the oil market will make it ripe for higher prices as soon as something goes wrong. The last time the world had this little spare oil production capacity was a decade ago, he notes, when crude hit all-time record highs of almost $150 a barrel.

“This is not the highest that prices are going to go, and that will be driven by geopolitical concerns. There won’t be any spare capacity to cushion your Venezuelas, your Libyas, and the like,” he said.