Houthi Red Sea Advance and Saudi Pipeline Attacks Strain Global Energy Markets
Houthi control of Yemen's western coast and attacks on Saudi energy infrastructure are compounding global oil market strains. With the Hormuz strait restricted and the East-West pipeline damaged, spare capacity is choked by severe export bottlenecks and surging diesel prices.
The recent Houthi momentum is reshaping the war in Yemen for global energy markets. In a short span, the Houthis captured the port city of Mocha, reached the Bab al-Mandeb area, and seized Mayon, Zuqar, and other islands formerly controlled by forces allied with the Yemeni government. By doing so, the Houthis completed their takeover of the Yemeni western coast and the strait area. This control does not automatically grant them the ability to block every vessel transiting between Yemen and the Horn of Africa, but it brings missile systems, drones, surveillance, and small craft close to one of the world's most sensitive trade routes.
The timing is what makes the Yemeni development far more significant. Since the outbreak of the war with Iran, the Red Sea has become part of the backup system for energy exports from the Gulf. According to the U.S. Energy Information Administration (EIA), the volume of oil and petroleum products passing through Bab al-Mandeb surged from 5.4 million barrels per day in the final quarter of 2025 to 8.1 million barrels per day in the second quarter of 2026. Over the same period, traffic through the Strait of Hormuz collapsed from 21.6 million barrels per day to just 4.9 million.
The EIA clarified that the increase in Bab al-Mandeb was largely driven by Saudi Arabia rerouting exports through the East-West pipeline to Yanbu on the Red Sea coast. This created a new dependency. For years, the East-West pipeline served as Saudi Arabia's insurance policy against a disruption in Hormuz. The pipeline connects the oil centers in the east of the kingdom to the western coast, and Aramco raised it in the first quarter of this year to its maximum capacity of 7 million barrels per day. Saudi Aramco CEO Amin Nasser described it at the time as a critical supply artery that allows the handling of navigation limits in Hormuz.
The Attack on the Pipeline and the Triple Vulnerability
Last Thursday, this insurance policy was also hit. The Saudi Energy Ministry announced that the pipeline was attacked at several points in the Riyadh and Al-Madinah regions, and its operation was halted as a precautionary measure. The Saudi Foreign Ministry stated that the drones originated from Iraq. Baghdad confirmed that the launches came from Maysan Governorate, dismissed the local operations commander, and opened an investigation. The identity of the perpetrator was not published, but Arab media attributed it to Iran-aligned groups.
This means Saudi Arabia now faces three points of vulnerability simultaneously: Hormuz is restricted, the land route meant to bypass it was attacked, and at its western end lies Bab al-Mandeb under a much closer Houthi threat than before. The problem was already evident in production data before the pipeline attack. In a report published on Friday by the International Energy Agency (IEA), Saudi oil production in August was estimated at just 5.97 million barrels per day, compared to 8.24 million in July. The gap between actual production and the August target reached 4.45 million barrels per day.
Global Economic Impact and Diesel Crunch
Saudi Arabia possesses sustainable production capacity estimated by the IEA at over 12 million barrels per day, illustrating the gap between theoretical production capacity and the ability to safely market and extract oil during wartime. Even a price of around $105 per barrel, the level at which Brent traded at the time of the IEA report, is not necessarily good news for Riyadh. Every barrel sold generates more revenue, but Saudi Arabia is producing and exporting far less than its capacity.
The global market has learned over recent decades to measure spare production capacity as the primary safety cushion against crises. Current events remind us that spare production capacity is useless if the export routes themselves become the bottleneck.
The IEA already points to a market under extraordinary strain. Observed global inventories have dropped since February by 507 million barrels, including 95 million in August alone. Total oil exports from Gulf countries in August stood at about 13 million barrels per day, nearly half the pre-war level. In diesel, the situation is more severe: net exports from the Gulf dropped to 390,000 barrels per day, slightly more than a quarter of the pre-war level. Diesel prices in the United States crossed a level equivalent to $200 per barrel in early September, transforming the crisis from an oil market event into an inflationary threat.
Implications for Israel
From Israel's perspective, the economy can divert activity to Haifa and Ashdod. Experience from the first wave of Houthi attacks provides some reason for optimism. A Bank of Israel study found that despite a roughly 114% increase in the length of the shipping route between China and Israel, no significant drop in imports from Asia and no significant rise in import prices were recorded in the first half of 2024. The economy managed to adapt.
This current round is different because the blow to shipping coincides with the crisis in oil and refined products. The port of Eilat is already nearly paralyzed, and the Houthi takeover of the Yemeni side of Bab al-Mandeb further reduces the likelihood of a rapid return of regular shipping lines. The bulk of Israeli cargo moves by sea, so the economy can shift activity to Haifa and Ashdod, but at the cost of less logistical flexibility and greater dependence on Mediterranean routes. At the same time, Israel holds an important advantage: about 73% of its electricity is generated from natural gas, most of it domestic, shielding it from direct oil-price spikes in power generation.
