Red Sea: Houthi advances in Yemen risk widening the Middle East conflict and its economic fallout

Event

Over the past few weeks, the Houthis, an Iran-backed Yemeni rebel group, have launched an offensive against positions held by forces of the Saudi-backed internationally recognised government (IRG) in Yemen, effectively ending four years of relative stability in the country’s civil war. The group rapidly gained control of key locations on the Red Sea coast, including the port of Mokha, as well as strategic positions around the Bab-el-Mandeb, most notably Perim, which divides the strait in two, and the Hanish Islands in the southern Red Sea. As a result of the offensive, the Houthis are now reported to control the entire Yemeni Red Sea coastline.

Impact

Although these developments represent the latest episode in Yemen’s civil war, they risk further complicating the regional security environment. They are already increasing tensions in the Red Sea and exacerbating disruptions to maritime trade flows amid hostilities between Saudi Arabia and the Houthis. Indeed, if the Houthis are able to retain their recent gains, this would strengthen their ability to monitor and disrupt shipping through the Bab-el-Mandeb, allowing them to weaponise this maritime chokepoint more effectively against Saudi Arabia.

This situation, alongside attacks against energy infrastructure by the Houthis and other Iran-backed groups, poses a major risk not only to Riyadh but also to global oil markets. As shipping through the Strait of Hormuz remains disrupted, Saudi Arabia has increasingly relied on the East-West pipeline, its Red Sea ports and the Bab-el-Mandeb to reroute part of its oil exports. With increased instability in the Red Sea, this strategy is coming under growing pressure. Attacks from Iraq against the East-West pipeline, which forced its temporary shutdown, underscore its vulnerability. Despite reports that partial capacity could be restored within days and full capacity within weeks, further attacks cannot be excluded, leaving operations exposed to recurrent disruptions.

To limit its exposure to the deteriorating situation around the Bab-el-Mandeb, Saudi Arabia has reportedly increased its use of the Suez Canal and the SUMED pipeline. However, this option remains suboptimal given that Asia is Saudi Arabia’s main oil export market, making the route both longer and more costly. Moreover, the recent unclaimed drone strike on Egypt’s port of Damietta illustrates that even the Mediterranean route is not immune to the effects of the wider regional conflict. 

Looking ahead, downside risks are likely to persist over the coming months, as prospects for a diplomatic resolution of the broader Middle East conflict remain limited. Meaningful negotiations have yet to resume, while the USA and Iran still disagree on the conditions for restarting talks. At the same time, Oman’s efforts to restore traffic through the Strait of Hormuz remain contingent on Iranian demands for US concessions that are unlikely to be granted. Meanwhile, developments in Yemen are likely to follow their own trajectory, depending primarily on Saudi-Houthi negotiations.

Analyst: Andres Hernandez Cardona - a.hernandezcardona@credendo.com