Houthi Red Sea blockade threatens oil prices, but bypass routes may soften blow

Yemen's Houthi group has declared a naval blockade on Saudi Arabia, threatening to disrupt crude oil shipments through the Red Sea. The move, announced on Monday, opens a new front in the shadow war between Iran and the United States, and raises fresh questions about global energy security.

The Red Sea is a critical artery for oil tankers moving from the Middle East to Europe and beyond. About 5% of global oil supply passes through the Bab el-Mandeb strait at its southern end. A sustained blockade could force tankers to take longer, costlier routes.

How the blockade could affect oil prices

Oil prices are likely to rise in the immediate aftermath of the announcement. Traders typically price in risk premiums for any disruption to major chokepoints. Brent crude futures have already shown upward movement in early trading.

Analysts warn that a prolonged blockade could cut Saudi Arabia's crude exports significantly. Riyadh relies heavily on Red Sea terminals for shipments to European and North American buyers. If those routes are blocked, the kingdom would have to divert oil through its east coast ports, adding days to shipping times.

But not all experts expect a sharp, sustained spike. "The market has learned to adapt to Middle Eastern tensions," said one oil market analyst. "There are workarounds, and traders have seen this playbook before."

Alternative routes and pipelines

The most obvious workaround is the 1,200-kilometre Petroline pipeline, which runs across Saudi Arabia from its eastern oil fields to the Red Sea port of Yanbu. If the Red Sea exit is blocked, Saudi oil could instead flow through the pipeline to the Arabian Gulf, bypassing the Houthi threat entirely.

Another option is rerouting tankers around the Cape of Good Hope, at the southern tip of Africa. This adds roughly 10 to 15 days to a voyage from the Middle East to Europe. While it increases freight costs and insurance premiums, it does not cut off supply entirely.

Global oil inventories remain comfortable for now. The International Energy Agency has cited ample strategic reserves among member nations. That buffer could help absorb short-term disruptions without panic buying.

Pakistan caught in the middle

The blockade also deepens Pakistan's diplomatic dilemma. Islamabad has long tried to balance its ties with Saudi Arabia, a key economic partner, and Iran, which shares a long border and a common Shiite heritage. The Houthis are backed by Tehran.

Pakistan's foreign office has not yet issued a formal statement on the blockade. But analysts say the country is caught between its obligations to protect Saudi territorial integrity and its desire not to antagonise Iran. The situation could force Pakistan to choose sides in a widening regional conflict.

What to watch next

The immediate focus is on how Saudi Arabia and its allies respond. The United States has not confirmed whether it will deploy additional naval assets to the Red Sea. If the blockade is enforced, oil markets will watch for any signs of a broader military escalation between Iran and the US. For now, the risk of a price spike remains real, but the world's oil supply chains have proven resilient before.