Houthi control of Bab el Mandeb removes the workaround for a closed Hormuz

Cargoes could go up the Red Sea and through the Bab el Mandeb Strait, the main alternative for shipping Gulf oil and gas ^[3]. Saudi Arabia could push a large portion of its exports west overland through the East-West pipeline ^[4]. Those two routes absorbed the closure of Hormuz. The Foreign Affairs essay says the war has now reached both of them ^[13]. As of mid-September the Red Sea chokepoint is under Houthi control ^[3], and the pipeline was temporarily disabled by a drone launched by an Iranian-affiliated militia operating out of Iraq ^[4].

Oil passed $125 a barrel in April, during what the International Energy Agency called the "most severe oil supply shock in history", then settled into the $80s and $90s until this month ^[11][10]. Producers outside the Gulf, among them the United States, Argentina, Brazil, Canada and Guyana, added an estimated 1.4 million barrels a day ^[12]. Nearly 20 million barrels a day of crude and refined products crossed Hormuz before the war ^[8], so the added supply is about 7 percent of the prewar flow ^[1]. Exports were running at roughly half their prewar level by August ^[9]. On that basis, the new barrels covered something like 14 percent of the missing volume ^[2].

For anyone buying fuel or chartering capacity this quarter, $110 is about 47 percent above the mid-$70s of August ^[3]. Hedging at that level locks in the premium the last six months created. Declining to hedge leaves the exposure the essay describes: further supply interruptions could easily push oil to $150 or even $200 a barrel now that the region's energy infrastructure is being struck ^[6]. The essay also argues that the United States and its allies could not protect energy infrastructure and shipments indefinitely under threat of attack ^[19].

The essay is an argument for diplomacy, not a market forecast. It describes the pipeline outage as temporary and never puts a number on the traffic still moving through Bab el Mandeb under Houthi control.

Timing separates two decisions. Re-pricing an energy and freight plan is this quarter's work, because the route that had been absorbing the disruption is unavailable now. A settlement runs on a longer clock. The essay calls for an agreement with Iran covering a cease-fire, a plan for keeping vital waterways open and measures that induce Tehran to comply, and it wants Riyadh to pursue a similar settlement with the Houthis ^[17]. Both capitals would have to make painful concessions, it says ^[18]. "The least bad option is a return to diplomacy," the essay says ^[16]. Half a year of military attacks and economic coercion has not forced Tehran and its partners into concessions, by its account ^[14], and President Donald Trump threatened in a UN speech on Tuesday to "annihilate" Iran ^[15].