The Houthi terrorist attacks have dire implications for both oil markets and global trade

Rashid Husain SyedThe threat of the ongoing war in the Middle East expanding and engulfing other players in the region is growing. Despite the war’s ongoing nature, oil markets have remained relatively unaffected, largely ignoring its implications. However, this stability is now facing challenges.

Several factors are at play. Attacks by Houthi terrorists on merchant vessels passing through the Red Sea as a sign of their support to the embattled Palestinians in Gaza is the first signal that the war now has a real potential to spread. Houthis control major areas in Yemen.

By targeting vessels with perceived links to Israel, they are attempting to force Tel Aviv to stop the war and let full humanitarian aid get into Gaza. As per an Aljazeera report, Houthis have launched at least 26 separate attacks on merchant freighters since Nov. 19. Last Wednesday, Houthi rebels fired their largest barrage of projectiles yet.

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Houthi activity has so far been concentrated in the narrow strait of Bab al-Mandab, which connects the Gulf of Aden to the Red Sea. Approximately 50 ships sail through the strait every day, heading to and from the Suez Canal – a central artery for global trade. Major shipping companies MSC, Maersk and Hapag-Lloyd, and British oil giant BP, among others, have begun diverting their ships to alternative routes.

Freight rerouted from the Suez Canal typically travels around the southern tip of Africa, extending the length and the cost of the trip by roughly 30 percent, Professor Jason Miller of Michigan State University was quoted as saying by ABC News.

To counter the threat from the Houthis, the United States dispatched a multinational naval task force to the region. On Dec. 19, U.S. Defense Secretary Lloyd Austin announced that Bahrain, Canada, France, Italy, Seychelles, and the United Kingdom would be among the countries joining a 10-nation “multinational security initiative.”

Then, on the last day of last year, American Navy helicopters attacked the Houthis, killing 10 of its fighters and sinking three of its speedboats. And again, last Thursday, the U.S. and UK led a bombing campaign against multiple Houthi facilities in Yemen. In response, Houthi Defense Minister Mohammed Nasser Al-Atefi said in a statement that the group would respond to the attack carried out by the U.S. and U.K. Iran too warned that the attack on Houthis will fuel “insecurity and instability” in the region.

Although Iran has avoided direct involvement in the war, the possibility remains. Amid high tensions in the region, Iran’s state media on Friday reported the seizure of an oil tanker by the Iranian Navy in the Sea of Oman.

Media have reported that the oil tanker had previously been seized alongside a large cargo of Iranian crude oil by the U.S. government in 2023, and Friday’s seizure by Iran was a retaliatory act.

How safe would the Strait of Hormuz remain and for how long, continues to be a concern.

The possibility of sucking Lebanon and Iran into the Middle East water theatre is growing. On Jan. 2, senior Hamas leader Saleh al-Arouri was killed in Beirut by an Israeli drone raid. It was the first air raid on Beirut since 2006.

And then, only last week, Israel assassinated a Hezbollah commander in south Lebanon while Hezbollah struck a sensitive Israeli base with rockets. Reports are also emerging that Iran-backed groups in Iraq have also stepped up attacks on U.S. military bases.

For his part, U.S. President Joe Biden has said he is keen to prevent the war on Gaza from spiralling into an all-out regional conflagration. However, the Houthis are viewing the bombing of Yemen by the U.S. and UK as an escalation.

Oil markets are rattled. Analysts now insist that an escalation of the Middle East conflict would dramatically amplify the effect on oil prices and inflation. “That would be a mess,” Rob Handfield, a professor of operations and supply chain management at North Carolina State University, told ABC News.

In the event of a direct conflict between Israel and Iran, a major oil producer, oil prices would go up, resulting in a price shock. Helima Croft, a former CIA analyst, told CNN that there is a “very real risk” to energy facilities in the region if Iran decides to directly enter the conflict and suggested oil prices have room to rise sharply if the situation escalates further.

Despite weak demand, if Israel continues its Gaza attacks, oil markets could be in for some real surprises.

Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. His insights on global energy matters have been sought after by organizations such as the Department of Energy in Washington and the International Energy Agency in Paris.

For interview requests, click here.


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