Geopolitical risks in the Middle East have escalated once again, delivering a fresh shock to global crude markets. On July 23, Yemen’s Houthi militants reportedly launched military strikes against two Saudi Arabian oil tankers, sending Brent crude futures surging more than 7% to break above the $100-per-barrel mark for the first time since late May, with prices briefly touching $101 intraday.
After Hormuz, the Bab el-Mandeb Strait Comes Under Threat
The sensitivity of this attack lies in its location and timing. The Houthi-controlled territory in Yemen overlooks the Bab el-Mandeb Strait—the strategic choke point between the Red Sea and the Gulf of Aden. Since the outbreak of conflict between the U.S.-Israel alliance and Iran, traffic through the Strait of Hormuz has been severely restricted, forcing Saudi Arabia to reroute crude through the Red Sea via its East-West Pipeline to the export terminal at Yanbu on the Red Sea coast. Data shows that recent average daily crude loadings at Yanbu have approached the pipeline’s peak capacity of 7 million barrels per day.
The Houthi action directly targeted this critical “lifeline.” The attacked tankers were identified as the “ENCELIA” and the “LAYLA,” with the Houthis claiming to have used ballistic missiles, cruise missiles, and drones in the assault, which caused fires on board the vessels. In the aftermath of the attack, approximately 10 ships were forced to turn back, and traffic through the Bab el-Mandeb Strait fell 34% on the day.
Supply Chain Vulnerability Exposed, $120 Extreme Scenario Emerges
The cascading chain of “Hormuz disrupted – Red Sea reroute – Bab el-Mandeb threatened” is pushing global crude supply into increasingly precarious territory. Goldman Sachs analysts warned in a latest report that if shipping through the Strait of Hormuz remains disrupted, Brent crude prices could break above $120 per barrel in the fourth quarter. The bank also noted that global inventory draws in the second quarter have significantly eroded the oil market’s ability to absorb supply shocks.
UBS analyst Giovanni Staunovo, meanwhile, suggested that even if the conflict de-escalates, the recovery of Middle Eastern crude exports could be slower than expected, as more vessels would need to re-enter the region, keeping markets on edge in the near term.
Oil Stocks Follow Suit but Trail Behind, Risk-Reward Profile in Focus
The oil price surge provided a direct boost to the energy sector. On July 23, ExxonMobil rose 1.6% and Chevron gained 1.9%, with multiple shale producers also moving higher. However, on a year-to-date basis, Brent crude has rallied approximately 65%, while ExxonMobil and Chevron shares have advanced only about 30%. This suggests that if crude prices hold at elevated levels or continue to climb, there remains considerable room for earnings upside at the energy majors.
Analysts also caution, however, that current oil prices carry a significant geopolitical risk premium. Should U.S.-Iran relations show signs of détente or shipping resume, the earlier gains could be quickly reversed. But for now, the “dual strait disruption” scenario means that roughly one-quarter of global crude supply faces uncertainty, with near-term upside risks to oil prices still significantly outweighing downside risks.
