The oil market remains relatively cool as Houthi ballistic missiles and drones fly over the Red Sea, confusing some experts who had expected a larger rise in energy prices.
According to the US, Yemen's Houthis have launched more than 100 drone and missile attacks on 10 merchant ships in the Red Sea. Attacks have intensified in recent days and oil prices have risen.
Brent crude, the international benchmark, rose around 0.6 percent to $79.70 a barrel on Wednesday, recording a weekly gain of around 8 percent.
Nevertheless, experts had expected more dramatic price fluctuations, as oil prices have risen in the past when the conflict in the Gulf region broke out.
The Houthi attacks focused on the Bab al-Mandab Strait, a strategic chokepoint in the Red Sea through which about nine percent of the world's crude oil and petroleum products flow.
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“The risk premium in oil markets simply wasn’t as high as one would have expected,” Karen Young, an expert at Columbia University’s Center on Global Energy Policy, told Middle East Eye.
“Where is all the panic and wild price swings?” asked Viktor Katona, an analyst at commodity data firm Kpler.
“I think the market is massively downplaying the impact of a disruption in Bab-al-Mandab,” Katona said.
He told MEE that the market appeared to be complacent about disruptions in the Red Sea, noting the monthly average flow of seven million bpd (barrels per day) of crude oil and oil products through the Suez Canal to the north of the strait the right way was halved in December.
But oil market fundamentals, a rewiring of global energy flows and strategic considerations by the Houthis and their backers in Tehran could keep prices under control, experts say.
Goldman Sachs against the Houthis
The Houthi attacks come at a time when the oil market is flooding with new supply, including in the United States, where production hit a new record. And the tensions between Tehran and Washington over the Gaza war have not slowed Iran's rapid oil exports. Meanwhile, analysts predict weak oil demand.
“Energy flowing through Bab al-Mandab is important for markets, but that is not the whole story,” Jim Krane, an energy studies expert at Rice University’s Baker Institute, told MEE.
The Houthis – an Iran-backed group that captured the Yemeni capital of Sanaa in 2014 and waged eight years of war against Saudi Arabia and its allies – hold a valuable swath of real estate, and Houthi officials have gleefully threatened to invade the Strait To close Bab al Mandab.
“The Houthis have been extremely precise in avoiding hitting non-Western oil tankers.”
– Viktor Katona, carpenter
At its narrowest point, the strait is just 18 miles wide, limiting tanker traffic to just two two-mile-wide channels for incoming and outgoing ships. Although a key chokepoint, the Strait of Hormuz, which separates Iran from the Gulf states and through which up to 30 percent of the world's oil flows, is the artery of most concern to markets and policymakers.
Analysts at Goldman Sachs expect crude oil prices would rise by only $3 to $4 a barrel if the Houthis carry out their worst-ever threat to close the strait.
Energy giant BP announced this week it would halt all deliveries through the Red Sea, citing a “deteriorating security situation.” Norway-based oil tanker Frontline also said it would divert ships on a longer journey through Africa.
Armen Azizian, crude oil market analyst at Vortexa, told MEE that for security reasons, tankers near the Yemeni coast had started pinging different locations to disguise their position. Freight rates for tankers traveling from the Middle East to Europe have also increased as a result of the attacks.
These measures underscore concerns about the Houthi threat from ship owners and operators carrying energy supplies,”[but] Overall, it is unlikely that flows will be significantly and permanently diverted,” Azizian told MEE.
Russian and Saudi ships are safe
According to MarineTraffic data shared with MEE, there were 12 ships carrying liquefied natural gas (LNG) in the Red Sea and 182 ships carrying liquid cargo, including oil and gas, as of Tuesday evening. That's more than the average number of ships carrying such cargo before the Houthis began their attacks.
Fotios Katsoulas, a senior tanker shipping analyst at S&P, told MEE that the companies that have diverted their ships in Africa represent only a small portion of the global fleet.
One reason could be that a large proportion of the tankers operating in the Red Sea transport Russian crude oil. Since the war in Ukraine, Gulf Arab states have traded with Russia on the oil market, redirecting their sales to Europe, while Moscow is shifting its oil shipments to Asia.
The global rewiring of energy trade has increased tanker traffic in the Red Sea, but few in the industry believe it will fall into the Houthis' crosshairs.
“The increased activity of tankers passing through the Suez Canal since last year is primarily due to the Russian barrels… these vessels are not being targeted.”
-Fotios Katsoulas, S&P
“The increased activity of tankers passing through the Suez Canal since last year is primarily due to this “The Russian barrels are leaving Europe and heading towards India and China,” Katsoulas said.
“All of these ships are simply not being targeted.”
The Houthis say they only attack ships linked to Israel, but some with little or no ties to Israel have also been hit.
On Monday, the Norwegian owner of a ship attacked by the Houthis said the group relied on false industry trade data to attack their ship over false connections to Israel.
Still, industry insiders and Western officials say the Houthis have demonstrated a keen ability to pinpoint their attacks.
“The Houthis have been extremely precise in not attacking non-Western oil tankers,” Kpler’s Katona told MEE. “There are many Saudi, Iraqi and Russian tankers in the Red Sea and the Houthis have not attacked a single one.”
The Red Sea has seen an increase in the number of ships transporting LNG from Qatar to Europe as a result of the invasion of Ukraine. However, given Doha's friendly relations with Iran, few expect the Houthis to attack these ships.
The Houthis have also refrained from attacking Saudi Arabia's or Emirati oil infrastructure. In their note, analysts at Goldman Sachs said limited risk to production so far was another factor keeping prices under control.
“Gulf states intimidated”
On Tuesday, US National Security Council spokesman John Kirby said it was clear that Iran was providing “the means, the tools, the capabilities.” [and] “the weapons” the Houthis tasked with carrying out the attacks, but dodged when asked whether Iran ordered them.
A Western military official who spoke to MEE on condition of anonymity said the Houthis' targeted attacks – which ironically could tame oil markets – indicated much closer coordination between the group's leadership and Tehran.
“The Houthis and Iran have already won”
– Ali Alfoneh, Arab Gulf States Institute
“The Iranian Revolutionary Guards are in large numbers in Yemen,” the official said. “Sophisticated Houthi targeting would suggest a narrow leadership.”
The Houthis are currently holding direct talks with Saudi Arabia to turn a lull in fighting in Yemen into a long-term peace deal that analysts say is likely to solidify the Houthis' hold on northern Yemen.
“Iran and the Houthis are calculating a lot here,” Ali Alfoneh, senior fellow at the Arab Gulf States Institute, told MEE.
“They have no reason to attack Saudi oil tankers right now,” he said.
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On Monday, the US announced a strengthened naval task force called Operation Prosperity Guardian to protect ships in the Red Sea. Only one Arab nation has publicly registered: the Kingdom of Bahrain.
The Houthis warned on Wednesday that they would strike back if attacked by US forces and warned their Arab neighbors against joining the coalition.
Gulf states are wary of joining the group because they fear they appear to be siding with Israel while their populations are outraged by the war in Gaza.
And while Saudi Arabia is concerned about the Houthi attacks, Riyadh is likely taking solace in the fact that its assets were not hit, experts say.
“Iran and the Houthis have managed to intimidate their Arab neighbors. The Gulf states have everything to lose by starting a fight with Iran, and Iran has nothing to lose. The Houthis and Iran have already won,” Alfoneh said.