Middle East Conflict Worsens Energy Crunch 

In our Middle East conflict update:

• Vessel traffic through the Strait of Hormuz remains limited as negotiations stall
• Intensifying conflict between Saudi Arabia and Houthis threatens to disrupt Red Sea vessel traffic
• Global oil and gas prices spike again amid worsening security situation in the Middle East
• Strategic oil reserves have helped to stabilize global oil market, but lower reserves could make it harder for governments to respond to future supply disruptions

Since the beginning of September, the U.S. and Iran have exchanged drone and missile strikes in one of the worst escalations of the Middle East conflict since the temporary ceasefire went into effect in late June.

On September 9, Iran claimed that it had attacked ten ships near the Strait of Hormuz after the U.S. destroyed five of Iran’s oil tankers the night before, the biggest wave of direct strikes on vessels since the start of the war. Iranian forces have also targeted U.S. military assets in Kuwait, Jordan, Bahrain, Iraq, and the United Arab Emirates.

Iran has also threatened to target U.S.-linked oil and gas infrastructure across the Middle East if the U.S. launches a new offensive against Iran.

Despite ongoing attempts to reopen the Strait of Hormuz, shipping traffic through the waterway remains well below pre-war transit levels.

Before the start of the war, an average of 125 large commercial vessels, including bulk carriers, container vessels, oil tankers and gas carriers, transited the Strait of Hormuz every day, moving around 20% of global oil and gas supply.

The most recent report on September 21 confirmed that only 17 commodity vessels traveled through the waterway the weekend prior. This is up slightly from the past weeks. These recorded just 10 vessels transiting the strait, the lowest number since May.
The total number of ships moving through the strait might be higher than the numbers suggest. Some vessels could be crossing the waterway with their Automatic Identification System (AIS) transponders turned off to avoid detection.

Crude oil exports from Iran also remain constrained. The naval blockade imposed by the U.S. in mid-July remains in place.

Despite Iranian officials’ early-September claims that a deal with Oman on the strait’s future management was near, officials have paused negotiations amid rising regional tensions.

As the closure of the Strait of Hormuz shows no sign of ending, some countries in the Middle East have turned to alternative routes to export at least some of their oil and gas supply.

The Red Sea has become a crucial workaround for energy exports. Shipments heading towards Europe are going north through the Suez Canal. Shipments for Asia go south through the Bab al-Mandab Strait.

In 2025, around 4.1 million barrels of crude oil and refined products, roughly 5% of global supply, moved through this trade route every day.

Since the start of the conflict, Saudi Arabia has diverted more than 70% of its exports from its processing plant in Abqaiq near the Gulf via the East-West Pipeline to an export terminal at the Port of Yanbu on the Red Sea.

According to estimates, Saudi Arabia now ships around 4 million barrels of oil per day from Yanbu. Around 2.5 million barrels of these exports are heading south through the Bab al-Mandab Strait. A year ago, the country exported less than a million barrels from Yanbu.

However, following several years of relative calm, the armed conflict in Yemen between the Houthi’s and the country’s Saudi Arabia-backed government reignited in July, threatening to disrupt the movement of vessels in the Red Sea again.

In mid-July, the Houthis fired missiles towards southern parts of Saudi Arabia for the first time in years. This was after accusing Saudi Arabia of attacking the Houthi-controlled Sanaa International Airport (IATA: SAH) earlier that month. Shortly afterwards, the Houthis declared a naval blockade against vessels linked to Saudi Arabia.

In the weeks following the announcement of a maritime blockade, the Houthis attacked oil tankers linked to Saudi Arabia, oil facilities in Yanbu, and Saudi Aramco’s Jazan refinery located on the Red Sea coast.

In response to the growing security threat, tankers carrying oil from Yanbu have reportedly increasingly switched off their tracking systems. This is to avoid detection as they move through the Red Sea.

Houthi attacks forced Saudi Arabia to halt several energy facilities in the south of the country. The Houthis attacked Saudi Aramco assets in Abha, Najran and Jazan with missiles and drones in early September.

On September 11, Saudi Arabia had to shut down its East-West Pipeline. This was in response to multiple drone attacks on sections of the pipeline in Riyadh and Madinah a day earlier. The measure was initially precautionary. However, subsequent assessments confirmed that the attacks damaged at least three of the pipeline’s eleven pumping stations. Some estimates suggest the pipeline might need to remain offline for up to six weeks. Others suggest that the pipeline might be able to partially restart while repair work continues.

Saudi Aramco has already informed at least two customers in Europe that they won’t receive any crude oil shipments in October due to the pipeline closure despite existing long-term agreements.

In addition to aerial attacks, the Houthis have also made significant gains on the ground in Yemen. This could strengthen their ability to disrupt shipping in the Red Sea.

Following a rapid ground offensive, the Houthis seized the port city of Mokha on September 10. Mokha is located less than 50 miles (80 kilometers) from the Bab el-Mandeb Strait. The armed group has since made further advances down the Red Sea coast towards several strategic islands.

By mid-September, the Houthis had captured the island of Perim, which is located in the Bab al-Mandab Strait. In addition, they captured the islands of Greater and Lesser Hanish. These are located around 100 miles (160 kilometers) north of the Bab al-Mandab Strait.

At the time of writing, the Houthis show no sign of ending their offensive. A total closure of the Bab el-Mandeb Strait would cut off access to the second of the Middle East’s two main energy export routes. China has reportedly asked Iranian authorities to suspend further military escalations with Yemen to protect its oil imports from the region. China accounts for 80% of Iran’s seaborne oil exports.

At the time of writing, it remains unclear how disruptive the recent attacks by the Houthis will ultimately be to shipping through the Red Sea. The group’s last military campaign, launched in October 2023 in response to Israel’s war in the Gaza Strip, caused vessel numbers in the Red Sea to drop and forced major shipping companies to divert their ships around the Cape of Good Hope in Africa, a longer and more expensive route.

According to data from the Suez Canal Authority, shipping traffic through the canal remained 52% lower than 2023 and is still at one of its lowest levels in at least 50 years.

Several major carriers, including COSCO SHIPPING Lines Co., Ltd., Orient Overseas Container Line (OOCL), A. P. Moller-Maersk Group, Hapag-Lloyd AG, and Mediterranean Shipping Company S.A. had confirmed plans this summer to return more of their services to the Red Sea, however, it remains possible that the recent conflict flare-up could derail these plans again.

As the conflict in the Middle East flared up again, oil and gas prices have spiked amid growing uncertainty about the continuity of energy supply from the region. Natural gas prices in Europe surged to their highest level since January 2023 at the beginning of September after hostilities between the U.S. and Iran escalated.

By early September, Dutch front-month futures, the main benchmark for natural gas prices in Europe, were 70% higher than at the beginning of July when a temporary ceasefire seemed to stabilize the security situation in the Middle East. Natural gas prices remain elevated, currently standing at €75 ($86). This is more than 75% higher than in late June when the ceasefire went into effect.

Global oil prices have also jumped in response to the renewed military strikes in the Middle East. On September 9, the price of brent crude oil, the global benchmark for oil prices, reached $100 (€87) per barrel. This was for the first time since July. Some estimates suggest that prices could exceed $120 (€104) if the conflict, and associated shipping disruptions, continue into next year. In total, oil prices are currently more than 40% higher than they were at the start of the war. Prior to this, prices stood at around $70 (€61) per barrel.

A recent resurgence in demand from China has also driven up global oil prices.

Earlier in the war, a temporary drop in purchases from the world’s biggest importer of oil had helped keep prices from surging even higher. China’s existing oil stockpiles of approximately 1-1.4 billion barrels of crude oil gave it more flexibility to pull back from oil imports as prices and demand for available shipments spiked after the closure of the Strait of Hormuz disrupted energy shipments.

A number of countries have also drawn on their existing oil reserves to cushion the impact of the strait’s closure.

Japan relied heavily on energy shipments from the Middle East prior to the conflict. The country carried out the largest-ever release from its strategic oil reserve in March. It and released another 20 days’ worth of supply in May. However, Japan does not plan to draw from its reserve again until at least the end of October.

In the U.S., the Strategic Petroleum Reserve (SPR) reached its lowest level since 1982 in June. This is following years of releases in response to the wars in Ukraine and the Middle East. The last release in March was coordinated with the International Energy Agency (IEA). A coalition of more than 30 countries agreed to release 400 million barrels of oil. This was to ensure energy supply security and to stabilize the global oil market.

Even though shipments from the Middle East remain limited, Fatih Birol, the chief director of the IEA, stated in late August that the IEA is not planning to carry out another release of strategic oil reserves.

In the U.S., President Trump floated the idea of using oil from Venezuela to refill the SRP. The U.S. had not explained how it would execute that plan. Nor is it clear how long it would take to replenish the country’s storage capacity that way.
National oil reserves are still far from running out. However, lower reserve levels could make it harder for national governments and intergovernmental organizations, such as the IEA, to stabilize global oil prices during another supply shock in the future.

Everstream clients are receiving more detailed insights and recommendations about this risk.
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