New Troubles in the Oil Market as Saudi Arabia Halts Shipments in the Strait of Bab el-Mandeb
Amid general concerns over the threat posed by Iran to close the Strait of Hormuz – in response to new sanctions imposed by the U.S. potentially affecting its oil export – another vital oil chockepoint comes in the spotlight, the Strait of Bab el-Mandeb.
On Wednesday 25th, according to Saudi officials, two oil tankers were attacked by the Houthi militias in the Bab el-Mandeb Strait. Of the two Very Large Crude Carriers (VLCC’s) one suffered minor damage, but there were no injuries or oil spill as a consequence.
The attacks resulted in the decision of Saudi Arabia to halt temporarily all the shipments through the Strait of Bab el-Mandeb for safety reasons.
A Crucial Oil Chockepoint
Almost two thirds of oil trade travels via maritime routes, and among the many oil chockepoints existing, four are the most vital to the oil market for both the size of the trade and the risk.
The Strait of Hormuz, the Strait of Malacca and the Suez Canal combined with the SUMED pipeline, are the first three for importance.
The fourth is the Strait of Bab el-Mandeb, a narrow passage between the horn of Africa and the Middle East, between Djibouti and Yemen. Linking the Red Sea and the Gulf of Aden, it carried about 5 mb/d of oil traffic in 2016, partly for Europe and partly for the Middle East and Asia.
The Strait of Bab el-Mandeb is crucial since it carries most of the oil that subsequently passes through the Suez Canal and the SUMED pipeline, and its importance is increased by its proximity to Yemen, where Saudi Arabia and Iran are engaged in a three years long proxy war.
Lengthy and Costly Alternatives
The main problem arising with the temporary halt of the oil traffic through the Strait of Bab el-Mandeb is that alternatives are not easy.
Saudi Arabia can use the East-West mega-pipeline – that has a capacity of 5 mb/d – to export oil to the European market, through the city of Yanbu on the Red Sea.
However, a full closure of Bab el-Mandeb would force Kuwait, the UAE, Iraq together with Saudi Arabia shipments to sail around the southern tip of Africa, with an increase in time and costs.
Another proxy war?
“Do not play with the lion’s tail. You will regret it forever”.
These were the words pronounced by the Iranian President Rouhani, nowadays called “The Lord of Straits” in response to the U.S. pressure.
After Iran’s threats to close traffic in the Strait of Hormuz, the recent attack by the Houthis coincided with news of India canceling one cargo of Iranian oil after renewing insurance cover and probably resuming import from Iran only after having obtained a waiver from the U.S.
Many other countries are facing difficulties in finding insurance coverages and credit lines to buy Iranian oil.
The attack was blamed on the Houthis, but in reality fingers were pointed at regional rival Iran, considered to be behind the armed group active in the war in Yemen, that borders Bab el-Mandeb.
Could the attack of the Houthis be a strategy of Iran to compel other oil producing countries to act in its favor?
And if so, what will be the prevailing element determining the Saudi strategy now? Will it be the fierce opposition to Iran, or the Saudi role of guarantor of the equilibrium of the oil market?