The Houthi campaign targeting shipping in and around the Bab al‑Mandeb has moved beyond episodic harassment and is now a structural source of market risk. In November 2024 the group’s launches of drones, cruise missiles and anti‑ship ballistic missiles at vessels transiting the southern entrance to the Red Sea forced defensive military actions and prompted insurers and shipowners to reprice risk for a vital energy corridor.
Why the Bab al‑Mandeb matters for oil markets is simple geography and concentration. The strait is the southern gateway to the Red Sea and the Suez Canal route, a corridor through which a significant share of seaborne crude, refined products and LNG move between the Middle East and Europe or tranship to Asia. Shipping data compiled in 2024 showed a marked fall in flows through Bab al‑Mandeb compared with 2023 as owners rerouted tankers around the Cape of Good Hope to avoid the risk envelope adjacent to Yemen. That substitution erodes the route’s time and cost advantages and raises freight and bunker consumption for each voyage.
Markets react quickly to this kind of chokepoint risk. When operators pause transits or insurers add exclusions and surcharges, traders treat those changes as an effective tightening of medium term deliverability even if physical barrels remain in the water. Previous episodes of Red Sea disruption produced visible uplifts in freight and prompt crude prices because the market incorporates a risk premium for potential supply delays or sudden outages. The Houthi campaign has produced exactly that effect by raising the expected cost of moving oil from Persian Gulf load ports to Europe and Asia.
Two transmission mechanisms are important. First, rerouting adds days at sea and additional fuel burn. That increases voyage cost and reduces effective tanker availability. A movement of large volumes around the Cape can tighten near‑term tanker capacity and push spot freight rates up sharply. Second, and more immediate for oil benchmarks, is the insurance and credit channel. Firms transporting crude and refined products face higher war risk premiums or specific exclusions for transits through the Red Sea. Where insurers withdraw cover, charterers must either accept higher premiums or divert entirely, which tightens the forward curve and can raise prompt prices. These are not theoretical risks; in 2024 market assessments and broker reports recorded higher freight rates and expanded surcharges on routes that normally use the Bab al‑Mandeb.
That said, the size of any price move depends on three offsetting factors. One, the spare capacity and production decisions of major exporters. Producers with spare barrels can, in principle, offset a transit shock by increasing direct shipments to alternative routes or by adjusting term flows. Two, the elasticity of global refinery and tanker networks. If refiners can adjust intake points and if tanker fleets can be reallocated quickly, the physical supply shock will be muted. Three, demand fundamentals. Slower demand growth or structural demand weakness can absorb some of the risk premium. In 2024 these macro variables acted to limit runaway spikes even as risk premia rose.
From a strategic perspective the Houthi attempts to interdict Bab al‑Mandeb are significant for more than short‑term price blips. They demonstrate how nonstate actors with relatively low cost, high impact capabilities can weaponize maritime choke points to extract political leverage, impose economic costs and force international naval responses. That dynamic raises three policy imperatives. First, ensure durable multinational escort and surveillance arrangements to reduce the operational window within which the Houthis can threaten transits. Second, shore up market resilience through diversified routes, strategic stocks and clearer commercial contingency plans so that freight and insurance markets do not overprice short episodes into persistent premium. Third, avoid militarized policy choices that privilege tactical disruption of Houthi capabilities while undermining humanitarian access and the long‑term political settlement in Yemen. The military responses in November 2024 lowered the immediate kinetic threat around Bab al‑Mandeb but they did not erase the strategic vulnerability the episode exposed.
For traders and policymakers the takeaway is twofold. Near term, expect episodic spikes in freight and a risk premium on prompt crude and product benchmarks when Houthi activity intensifies or when coalition strikes provoke retaliatory escalations. Medium term, markets will price in the structural cost of securitizing maritime routes unless there is a credible diplomatic solution that reduces the incentive and capability of nonstate actors to pursue maritime interdiction. That is a problem that cannot be solved by market mechanisms alone. It requires coordinated naval security, targeted diplomacy and a recognition that energy security and regional stability are inseparable domains.