Market Insight | Week 30

The Middle East conflict entered a new phase following the Houthis’ imposition of a naval blockade against Saudi Arabia, adding to geopolitical uncertainty. Beyond attacks on vessels, recent reports that a Houthi strike forced the 400,000-bpd Jazan oil refinery to halt operations demonstrate that the Houthis are also willing to target energy infrastructure.

This escalation comes at a time when Saudi Arabia increasingly relies on its west coast to maintain commodity exports following the disruption of traffic through the Strait of Hormuz. Seaborne crude oil exports through Yanbu doubled in Q2 2026, reflecting increased flows through the East–West pipeline as the Kingdom sought to bypass Hormuz.

Against this backdrop, tanker shipping faces the most immediate exposure. For Saudi crude exports, the effects would differ by destination. European cargoes would remain largely unaffected, as they already move north through the Suez Canal. By contrast, the consequences would be considerably greater for barrels destined for Asia and the Indian subcontinent via Bab el-Mandeb. To avoid the Gulf of Aden, vessels would have to sail north through Suez before rerouting around the Cape of Good Hope, extending voyages to approximately 2.5 times their normal length, adding tonne-miles and increasing voyage costs.

Such rerouting would tighten prompt vessel availability and push spot rates higher, while increased use of the Suez Canal would provide further support for Suezmax demand. VLCCs would have to transit Suez partially laden, potentially requiring STS lightering and resulting in greater operational complexity and longer transit times.

Given the above, the strategic importance of the SUMED pipeline, and of Egypt more broadly as an oil transshipment hub, increases The pipeline connects the Red Sea with the Mediterranean, and Saudi Arabia would be expected to send greater crude volumes to Ain Sukhna port for transportation through SUMED to Sidi Kerir on the Mediterranean coast. From there, cargoes could continue to Asian markets via the Cape of Good Hope, providing an alternative route that avoids disruptions in both Hormuz and Bab el-Mandeb.

Moreover, energy-security considerations could lead importers to diversify away from the Middle East and seek alternative suppliers, reshuffling energy trade. Demand could shift towards the United States, Brazil and West Africa, while Russian crude flows to China and the Indian subcontinent could strengthen further.

For the oil-products segment, the reported attack on refinery infrastructure is particularly concerning. If such strikes persist and cause broader disruption to output and exports, they would compound the effects of Russia’s ban on diesel exports, further constraining seaborne oil-product export volumes and heightening energy-security concerns. Should Saudi refinery operations remain close to normal levels, the more immediate consequence would likely be a redirection of trade flows. Eastbound shipments from Saudi Red Sea ports would become materially less competitive, shifting a larger share of Saudi fuel volumes towards Europe.

Outside the tanker segment, the impact would be less pronounced. In dry bulk, grain shipments moving via Mediterranean and Suez into the Red Sea would be less affected, unless Houthi attacks on infrastructure escalate. By contrast, steel trade would be more exposed, given that a substantial share of steel products originates in China and transits Bab el-Mandeb.

For containerships, the Houthi move primarily interrupts the segment’s cautious steps towards returning to the Red Sea. Regionally, Jeddah is exposed because of its growing transshipment role and participation in Gulf feeder networks. More broadly, the continuation of diversions via the Cape of Good Hope, which tie up active capacity in an otherwise oversupplied segment, is expected to remain supportive of freight rates.

In conclusion, the threat of Houthi action disrupting Red Sea trade marks a significant escalation in the Middle East crisis and poses a material threat to regional navigation and trade. If it causes broader disruption to energy flows, the consequences could extend to the global macroeconomic outlook by intensifying energy-security concerns, raising energy costs, adding to inflationary pressures and weighing on global trade and economic growth.