Max Taylor

Max Taylor

Senior Analyst

07/08/2018

07/08/2018

How Houthi Rebel Forces are Impacting the Oil and Gas Market

On Wednesday 25th of July, two Saudi oil tankers carrying approximately 2 million barrels of crude oil for the Saudi-owned Aramco company were attacked by Houthi forces as they passed through the Straits of Bab El-Mandeb. 

Whilst only one of the ships were damaged in the attack, the incident highlighted the impact of Houthi Rebel Forces on the oil and gas market as they ship product through the narrow straits between Yemen and Africa.

Shortly after the attack, the Houthi Supreme Revolutionary Council (SRC) agreed that they would temporarily halt attacks on shipping in the Red Sea for two weeks, with the possibility for the promise to be extended for a longer period of time, depending on how peace talks progress. At the time of writing this article, the outcome of peace talks is unclear, and it is therefore assumed that the threat posed to the oil and gas industry whilst passing through the Straits of Bab el-Mandeb will resume at the end of the postponement of attacks.

It is not clear how the ships were targeted, but the Houthis possess a significant arsenal of weapons with the range and ability to cause severe damage, varying between modern anti-tank guided missiles such as the 9M113 Konkurs to the Badr-1 type ballistic missiles.

Also, in 2015, a group of military personnel from a Yemeni anti-ship squadron defected to the Houthi Rebel Forces attacks, bringing with them three patrol boats and C-802 anti-ship missiles. With these missiles having a range of 120-180km, they are capable of effectively closing off the straits. It is possible that these patrol boats and the C-802 missiles were used in the attack, although this is not currently clear. With these weapons, the Houthi fighters based on the west coast of Yemen retain the ability to target shipping, seemingly at will.

A C-802 Missile in Action. Image Credit.

Without further territorial control on Yemen’s western coast, it is unlikely that the Houthis would be able to fully close the Straits, even with their potentially lethal arsenal. Ongoing Saudi and UAE-led operations around the Hodeidah area along the coast have also limited the Houthis control in the region somewhat.

If the Houthis were to secure additional areas of Yemen’s western coast, and then use this control as leverage over the straits, the threat posed by the Houthis to the international community would increase significantly. Countries such as the USA, France and the UK, who have become reliant on the passage of shipping through the Straits, would be particularly hard hit by the closure. Furthermore, with the USA and allies accusing the Houthis of being an Iranian proxy, closure of the straits by the Houthis would also act as a clash between Iran and the USA in the ongoing regional confrontation, further complicating the situation. 

In recognition of the risk for shipping oil as it travels through the straits, Saudi Arabia announced shortly after the July 25th incident that shipping through the Straits of Bab al-Mandeb will be halted temporarily. Other countries such as China, India and Thailand have already chosen to avoid the straits altogether in order to avoid the myriad of threats the straits pose to shipping.

How long the ban on Saudi ship movement through the Straits will be upheld for is not currently clear, but before the ban, Saudi shipments were carrying an estimated 500,000-700,000 barrels per day (bpd), and so, the ban has the potential to create a significant negative impact on the efficiency of the delivery of such large volumes of oil.

Following on from Saudi Arabia’s decision, Kuwait is also reported to be considering a similar course of action in response to the attack. The impact of the ban is difficult to gauge as it only affects Saudi owned ships. Saudi companies are therefore able to negate the ban by chartering foreign vessels to carry their cargo.

Knock-on effects of the closure of the straits would greatly reduce the volume of traffic passing through the Suez Canal, and would potentially render the SUMED pipeline which runs alongside the canal redundant. Rather than going through the pipeline, tankers would instead be forced to extend their journey between the USA and Saudi Arabia by approximately 2,700 miles. The Straits therefore, being just 3.2km wide at one point and flanked by a strong Houthi rebel force with the ability to target shipping, are a natural chokepoint and a pressing concern for the global oil market. 

It appears that the Houthis recognise the global political significance of closing off the Straits or increasing the volume of attacks on shipping that pass through the Straits of Bab el-Mandeb. Even though Houthi forces were not able to sink a ship in the July 25th incident, the mere threat of a sinking oil tanker was enough to allow the Houthi forces to enter peace talks with leverage over Saudi Arabia and their US and European allies. 

Closure of the Straits would by no means force shipping from Saudi Arabia to the USA and Europe to cease, but the economic impacts of having to take a much longer route would certainly have a toll on companies and economies which are built upon the oil industry. Assessing the likelihood of such a closure, and consequent adjustment in the efficiency of Saudi shipping, is not currently feasible. The two-week cessation in attacks on oil shipping in the Red Sea announced by the Houthi SRC has allowed oil and gas companies a moment of respite but not much else for now. The agreement is not a long term fix and does not address the fact that if negotiations deteriorate, the Houthis still retain the ability to target shipping passing through the Straits and in the Red Sea. 

For regular Oil and Gas industry news, analysis and reports direct to your inbox, sign up to our updates here.

 

Back to top