Well That Escalated Pretty Quickly…
Key Extract
A new Houthi maritime embargo has closed Bab el-Mandeb, the back-up route for crude already displaced from Hormuz. Roughly 8.8 million barrels a day transit that strait.
Earlier this week, the Saudis bombed an airport in Yemen and that broke the fragile stalemate between the Yemeni Houthis and Saudi Arabia. A new maritime embargo has been put in place by the Houthis.
This Red Sea strait is known as Bab el-Mandeb.
Mind you, this happened before in 2024 when the Houthis did the same thing. Crude loadings went down to 4.1MM barrels, down from 9.3MM. The Saudis back then used their East-West pipeline to ship the blocked crude through the Hormuz strait.
Well, both straits are now blocked, which doesn't mean crude shipments go to zero. However, shippers and insurers will rethink risk premiums, or whether they should be using the strait at all.
So what's the big deal? Roughly 10%-12% of global trade transits this strait. About 7MM barrels of crude was rerouted from Hormuz to it. Around 25% of global oil and gas supply is at risk, and about 30% of global container ship traffic now needs to be rerouted.
Roughly 8.8MM barrels go through that strait each day, likely more, because this was also the back-up route when Hormuz was effectively offline.
That's a lot of barrels going away in our just-in-time global energy system. This is global trade and energy shipments taking a clean hook on the chin.
This is exactly the kind of volatility that eventually drives oil shortages, price spikes, manufacturing strains, and goods unavailability. By eventually, I mean when inventories, which act like a buffer to situations like this, dwindle down.
If you are one of our investors, this is exactly the kind of black swan you're hedged against by owning domestic US oil and gas production.
Your Oil and Gas team, Mike Qu, on behalf of CrownForge Energy.