Middle East oil supplies face another chokepoint blockage

The declaration by the Iran-aligned, Yemen-based Houthis militia of a naval blockade on its neighbour Saudi Arabia could restrict oil shipments through the Bab el-Mandeb Strait, meaning the two major waterways for Persian Gulf oil producers to reach the Asia Pacific region are now constrained.

This could ultimately have a greater impact on Australian motorists, as well as diesel users in the trucking, mining and agricultural sectors, than has been experienced so far this year during the conflict between Iran, the US and Israel. Oil traders have added the risk premium back into Brent crude oil futures, which are hovering above US$90/barrel – a level it was above for much of the earlier phase on the Iran-US conflict between late February to mid-June. 

Situated between the Horn of Africa and the Yemen coast, the Bab el-Mandeb Strait is a crucial energy chokepoint that connects the Red Sea to the Gulf of Aden and on to the Arabian Sea and the Indian Ocean. At 29km wide, it is narrower than the Strait of Hormuz, which is 39km at its narrowest point. 

Saudi Arabia, the world’s largest crude oil exporter, used this route for shipping the majority of its crude oil shipments while the Strait of Hormuz was closed from 28 February until the ceasefire announced on 17 June. Although US President Donald Trump declared the ceasefire over on 8 July, a trickle of traffic is still navigating through Hormuz.

Red light stop for alternative oil sea route

The Red Sea route for Saudi oil exports was a significant shock absorber during the February-June phase of the Iran conflict. According to data from Kpler, Saudi oil exports through the Bab El-Mandeb rose to around 4 million barrels per day (Mbpd) from April through to the first half of July, from less than 1Mbpd at the start of the year. Saudi shipments through the Strait of Hormuz fell from 6Mbpd in January to a trickle when the Strait was closed. Saudi refined product shipments through the Bab El-Mandeb were maintained around the 500,000-600,000-bpd level, while product shipments through Hormuz dropped from 800,000bpd in January to a handful of shipments during its closure. 

The Saudis increased shipments through its Red Sea Yanbu port, with oil tankers also travelling north to Egypt, where the Suez Canal and the 320km, 3Mbpd SUMED pipeline link the Red Sea with the Mediterranean. While oil from Saudi Arabia can therefore still flow north, it will be constrained as the Suez Canal cannot handle the Very Large Crude Carriers (VLCCs) that each hold 2 million barrels. The largest tankers to navigate the Suez are Suezmax vessels, which hold between 800,000 and 1.2 million barrels. 

The warning by the Houthis, who had stayed out of the Iran conflict until the last few days, signals a significant escalation in the Middle East conflict and underlines that this phase is about control of oil and gas supplies from the Persian Gulf. This reflects how the conflict has evolved. The Twelve-Day War of June 2025 was an attempt to dismantle and stop Iran’s uranium enrichment programme, while regime change marked the second phase from 28 February and resulted in the killing of Iran’s Supreme Leader Ayatollah Ali Khamenei.

The latest and third phase and is for control of trade through the Strait of Hormuz and now the Bab El-Mandeb Strait, which translates from Arabic as the ‘Gate of Tears’, and the most valued trade in this region is oil and gas exports. Iran has described its ambitions to control the maritime traffic in the Strait of Hormuz as way to ensure its own security – a view not shared by its Gulf neighbours, nor by the US or Israel. 

Diesel supplies wane, Americas crude exports ebb 

Renewed hostilities between Iran and the US coincided with Russia halting all diesel exports on 8 July following the success of Ukrainian drone strikes on Russian energy infrastructure. Russia was the world’s second largest diesel exporter behind the US. This impacts Australia, the world’s largest diesel importer. Even though Australia has sanctions on Russian exports, it now must compete with Russia’s diesel buyers China, Brazil and Turkey. The lack of Russian diesel exports removes a shock absorber for global oil markets.

Another shock absorber that emerged during the February-June phase of the conflict was the increase in crude oil supplies from the Americas, adding around 3Mbpd in May and early June compared with the average for last year. The scale of that increased supply has not been maintained. Combined exports from the US, Brazil, Guyana and Canada have fallen 18% since a 13.53Mbpd peak on 1 June, to between 10.7 and 11.1 Mbpd by mid-July. Tighter US onshore commercial crude oil inventories are putting pressure on the US to keep its crude rather than exporting it, according to Kpler.

Greater focus on China’s oil trading strategy 

Lower oil imports into China also helped keep a lid on higher oil prices. As the world’s largest energy consumer, China is a price-sensitive buyer – instead of importing oil, it dipped into its vast stockpiles for much of this year. Whether it can continue this during the latest phase of the conflict will be a key determinant on global oil prices. Australia imports a third of its jet fuel from China, and this trade has already been impacted as China has cut refinery runs and curtailed oil product shipments because of lower crude oil imports.

Australia has so far weathered the oil supply disruption well, despite being reliant on imported crude oil and oil product for around 90% of its daily fuel needs. However, this next phase of the conflict could be the most testing yet, amid reduced shipments from the Middle East and the Americas, no Russian diesel, and increased dependency on Chinese oil trading activity. All these factors signal challenges for crude and oil product purchasing by Australia, with tighter markets, and possibly higher prices. 

First published in Energy News Bulletin.