Aaron RobertsOil prices are wobbling again as fresh threats out of the Middle East collide with a market that had only just started to relax. The United States Oil Fund (USO), a widely used proxy for crude, closed at 117.98 dollars, down 0.75% on the day, sitting in the middle of its 52 week range of 102.42 to 143.78. The catalyst this time is not Iran directly but Yemen's Houthi movement, which has declared a naval blockade against Saudi Arabia's Red Sea ports, a move that could choke off a critical escape valve for Saudi crude.
| Price | 117.98 USD |
|---|---|
| Day change | -0.89 (-0.75%) |
| 52-week range | 102.42 – 143.78 |
| RSI (14) | 46.12 |
| Volume | 4,509,887 |
The timing matters. Weeks ago, traders were pricing in relief after a bout of United States and Iran tension briefly sent oil higher before hopes for a peace settlement dragged prices back down. Now the houthi red sea blockade threat is reviving the same fears, this time aimed at a route that Saudi Arabia has been leaning on precisely because the Strait of Hormuz has been effectively disrupted.
Why the Red Sea Route Suddenly Matters So Much
Saudi Arabia had rerouted more than 4 million barrels a day of crude away from Hormuz and through the Red Sea as tensions with Iran flared. That workaround did a lot of quiet work in calming markets, since it suggested supply could keep moving even if the Gulf chokepoint stayed tense. Energy Aspects cofounder Richard Bronze noted that traders have been hunting for a reason to push prices higher again after last week's jump, and a Houthi push to effectively shut the Bab el Mandeb strait would do exactly that.
Commodity analysts at ING, Warren Patterson and Ewa Manthey, said tankers have already begun diverting around Bab el Mandeb, opting instead to route through the Suez Canal. That detour adds real time and cost to voyages bound for Asia, the largest buyer of Middle Eastern crude. Reuters has reported that roughly 7 million barrels a day pass through Bab el Mandeb, a fraction of the 20 million barrels a day that used to move through Hormuz before the wider regional conflict began. But with Hormuz already compromised, the Red Sea corridor has taken on outsized importance almost by default.
A Market Already Running Hot Before This News
Crude has not been cheap this year by any stretch. Saxo Bank, citing Bloomberg figures, pointed out that oil prices had climbed as much as 65% year to date, and both Brent and West Texas Intermediate were up more than 50% over the twelve months through July. That is a steep run even without three digit headline prices, and it leaves little cushion if physical supply actually tightens further.
Matt Smith, commodity research director at Kpler, said the effect of a successful blockade would hit hard within the first month, with Saudi export flows bearing the brunt. John Paisie, president of Stratas Advisors, went further, warning that a severe disruption to Red Sea flows would ripple into refined product prices and strain the broader economy, potentially tipping toward recession. That such a scenario is even being discussed again, just weeks after many analysts assumed a lasting peace deal was close, says something about how quickly sentiment in this market can turn.
Trouble Beyond the Middle East Compounds the Squeeze
The Red Sea is not the only pressure point. Patterson and Manthey flagged that Russia's CPC terminal on the Black Sea has stopped taking oil from Kazakhstan after repeated tanker attacks, halting loadings. Kazakhstan normally ships around 1.7 million barrels a day through that terminal, and a prolonged suspension could eventually force the country to cut upstream production. Layer that on top of the 3 to 4 million barrels a day of Saudi crude potentially blocked by the Houthis, and the volume of oil suddenly at risk starts to look substantial.
The backdrop makes the timing worse. Governments have already drawn down several hundred million barrels from strategic reserves this year to keep a lid on retail fuel costs, leaving storage levels thin, in some regions critically so. Rebuilding those stockpiles was always going to take sustained supply. Doing it now, with two separate chokepoints under threat at once, looks considerably harder.
What a Prolonged Blockade Would Mean for Prices
USO's modest daily decline and its RSI reading of 46.12, roughly neutral territory, suggest the market has not yet fully priced in a worst case outcome from the Houthi announcement. That could change quickly if tanker diversions around Bab el Mandeb become the norm rather than the exception, or if Saudi Arabia struggles to find alternative routes for the volumes it had shifted away from Hormuz. The gap between hope for de escalation and the physical reality of two contested waterways is exactly the kind of tension that tends to produce sharp, fast moves in oil prices rather than steady ones.
Oliver Davis