The Houthis seize a second strait, and $100 oil is just the start
Red Sea shipping volumes have already halved from their peak and never recovered; now the Houthis have taken Barim Island in the Bab-el-Mandeb, putting Saudi Arabia's alternative export route around Hormuz in doubt too.
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The Red Sea is not just another waterway
In normal, calm times, nearly 15% of global seaborne trade passes through the Red Sea, including 30% of the world's container shipping, 12% of seaborne oil trade and 8% of liquefied natural gas. At its northern end the Red Sea connects to Egypt and the Suez Canal, and on to the Mediterranean; at its southern end that narrow channel leading to the Indian Ocean and Asian trade routes is the Bab-el-Mandeb. To grasp the weight of this strait, you first have to grasp how much the Red Sea itself carries — it is not a side route you can casually go around, but a stretch of the global trade trunk line.
— Patty Hirsch / Ricky MulveyThe Houthis really did take that ground
The host pressed Rachel on whether "seem to have seized" was hedging, and Rachel confirmed it: the Houthis are a rebel group that has gradually taken control of large parts of Yemen since at least 2014, allied with Iran, and strongly opposed to Israel's existence and to how Israel is fighting in Gaza. In November 2023 they began attacking Red Sea shipping, hijacking vessels and striking with drones and missiles; the US military responded with bombing, and the Red Sea was relatively calm for a while. But over the weekend they moved, seizing a stretch of Yemen's Red Sea coast, possibly to support Iran.
— Rachel ZiembaBarim Island is the key that locks the strait
The seized stretch includes an island right in the middle of the Bab-el-Mandeb — Barim Island, which the military calls "key terrain" because it overlooks the entire strait, and the strait is only about 18 miles wide at its narrowest point. Whoever controls that chokepoint decides which ships can pass. Red Sea traffic had already slowed because of the Houthi attacks, initially falling 50%, and it has never fully recovered. Now that Barim Island is occupied, the threat is that this route shuts down entirely.
— Rachel ZiembaSaudi Arabia's way around Hormuz is now in doubt too
This is a particularly thorny problem for Saudi Arabia. Since Iran blockaded the Strait of Hormuz more than six months ago, Saudi Arabia has been treating the Red Sea and the Bab-el-Mandeb as an alternative oil export route, sending oil through an east-west pipeline to Red Sea ports and loading it onto ships there. But last week that Saudi Red Sea pipeline was hit by a drone attack, and Saudi Arabia then suspended oil loadings from one Red Sea port. Rachel says this puts even more pressure on this lifeline for Saudi Arabia and the global economy — the creative workaround meant to cushion the world economy is itself extremely fragile.
— Rachel ZiembaSchrodinger Strait: collecting the toll without firing a shot
The Houthis could close the Bab-el-Mandeb at any time, but so far they haven't. Rachel says the mere fact that they can is already having an effect. Analysts call it the "Schrodinger Strait" — is it open or closed? That uncertainty by itself pushes up insurance costs and freight rates and adds friction to the global economy. After news of the Houthi advance last week, oil prices briefly spiked above $100 a barrel.
— Rachel ZiembaRefined products are rising faster than crude
Rachel points out that timing is crucial: the global supply gap was already building, only partly offset by rerouting and releases from strategic petroleum reserves, and at the same time refineries are seeing serious outages. That means not only is crude more expensive, but diesel, gasoline and other petroleum products are rising by proportionally more, because getting refined products to market has become harder. And it isn't only oil products — this strait also carries fertilizer and natural gas, which would be a problem if Europe has a cold winter.
— Rachel ZiembaSulfur and helium: the overlooked knock-on shortages
Sulfur is a byproduct of natural gas and fuel production, its supply is already more constrained, and it is used in metal processing, including copper. Helium is a byproduct of natural gas deposits, used as an input in semiconductors and in all kinds of medical equipment. Countries including the US and Canada are ramping up production of some of these goods, offsetting part of the price increase, but Rachel says not by much. That means shortages from this new trade disruption will reach ordinary people before long.
— Rachel ZiembaAmerican consumers end up footing the bill
Rachel says Americans should care because these are global markets, and you can't build a wall to stop imports. Some US producers may benefit from shortages, but in this kind of scenario American consumers tend to be the ones who lose. She also warns that it isn't just higher prices to worry about: the Houthi actions, plus Iran's refusal to yield, are straining relations among regional countries and between the US and its Middle East allies. Deteriorating US relations with its allies could make other US policy goals harder to achieve — Gulf states, for instance, are major investors in the US and key to US onshore production.
— Rachel ZiembaIn their own words · checked verbatim
Now we have a circumstance where the Houthis, whom the government's been battling for a long time, seem to have seized that land.
Rachel Ziemba3:05
Whoever controls that choke point can have say over which vessels can pass through.
Rachel Ziemba4:09
Initially, it dropped by 50 percent, and it is never fully recovered.
Rachel Ziemba4:09
This question of is it really open? Is it really closed? Just this uncertainty about is it open or closed? The costs, the physical risks remain high. These elevate insurance costs. They elevate anchor rates. And all of this just adds friction to the global economy.
Rachel Ziemba5:10
It's also happening at a time where there is significant outages of refineries, which are meaning not only does the crude oil price go up, but the price for oil products like diesel and gasoline have gone up proportionally greater just because it's been harder to get refined products to market.
Rachel Ziemba6:10
Americans should care because these are global markets and we can't just build barriers and stop importing. There may be U.S. producers who benefit from shortages, but the American consumer tends to suffer in these contexts.
Rachel Ziemba7:10
But Rachel says this latest action by Yemen's Houthis at this second strategic and highly vulnerable strait shows just how fragile and unsustainable such workarounds really are.
Rachel Ziemba8:19
Figures
| Red Sea share of global seaborne trade | nearly 15% | 2:00 |
| Red Sea share of global container shipping | 30% | 2:00 |
| Red Sea share of global seaborne oil trade | 12% | 2:00 |
| Red Sea share of global liquefied natural gas | 8% | 2:00 |
| Width of the Bab-el-Mandeb at its narrowest | about 18 miles | 4:09 |
| Initial drop in Red Sea traffic | 50% | 4:09 |
| Oil price spike | above $100 a barrel | 5:10 |
| Duration of the Strait of Hormuz blockade | more than six months | 4:09 |
Glossary
- Strait of Bab-el-Mandeb
- The narrow channel at the southern end of the Red Sea leading to the Indian Ocean, one of the world's trade chokepoints.
- Barim Island
- An island in the middle of the Bab-el-Mandeb; controlling it means overlooking the entire strait.
- Schrodinger Strait
- Analyst shorthand for the uncertain state in which the strait is neither formally closed nor reliably open.
- choke point
- A geographically narrow passage that a single party can control, thereby affecting global shipping.
How to listen
Investors and founders watching geopolitical risk, commodities and supply chains, especially anyone who needs to judge where oil prices, freight rates and insurance costs are heading.
The two opening show-promo segments and the closing podcast plug can be skipped.