Bab el-Mandeb and the Second Oil Chokepoint

Houthi forces took the Red Sea port of Mocha on Thursday, September 10. The Houthis captured the port early in the day after government forces pulled out. Four Yemeni government military sources said the seizure gave the group further leverage over the Bab el-Mandeb Strait, one of the world's most important shipping routes, while Houthi units attacked the Red Sea islands of Hanish and government forces relocated south to Dhubab, which sits directly on the strait across from the island of Perim; control of Dhubab and the island, they said, is key to holding the waterway.

The oil market repriced immediately. Brent ended the session at $107.63 after soaring 6.3% in a day, and West Texas Intermediate closed at $102.48, up 6.7% and the highest since May. By the following day Brent had eased back to around $106.

What makes this different from previous Red Sea scares is where Saudi crude is currently going. The Strait of Hormuz has been effectively closed by the ongoing conflict, and Saudi Arabia has responded by scaling up crude exports through Red Sea ports via the 1,200 kilometre East-West pipeline, which connects the Eastern Province to the Yanbu terminal. The workaround route now runs out through the strait the Houthis are advancing on.

In this article we explore how a shipping chokepoint becomes a price: the mechanics of war risk insurance, the arithmetic of rerouting and ton-miles, the way freight costs enter the delivered price of crude, and why a contested strait can push fuel prices up without a single barrel being physically lost.

Both Ends of the Peninsula

The Arabian Peninsula has two maritime exits. Hormuz, at the mouth of the Gulf, is the front door. Bab el-Mandeb, the southern outlet of the Red Sea between Yemen and the Horn of Africa, is the back door for anything that comes overland to the Red Sea coast and then heads north to Suez or south toward Asia.

The front door has been jammed for months. RBC's Helima Croft has noted that Hormuz is not literally closed but that the war has been costing the market roughly 8 million barrels a day, against about 20 million barrels a day of oil and products before the conflict. Some cargoes still cross, often on tankers sailing with their transponders switched off to evade detection, with vessels facing the constant threat of attack.

The back door is what Saudi Arabia has been leaning on. The kingdom began diverting exports to Yanbu on the Red Sea because the war had effectively halted flows through a strait that normally handles around 15 million barrels a day of Mideast Gulf crude, a disruption that forced Gulf producers to shut in some production for lack of storage and export outlets. Yemen's internationally recognised Presidential Leadership Council head, Rashad al-Alimi, put the stakes plainly this week, warning that Bab al-Mandeb "cannot become another Strait of Hormuz".

What "Closed" Actually Means

A strait is not a valve. Nobody bolts it shut. What changes is the probability, in the mind of a shipowner and an underwriter, that a given hull will be hit while passing through. Above some threshold of that probability, commercial traffic stops going, not because it is banned but because nobody will insure, crew or charter the voyage at a price the cargo can bear.

That is why control of a coastline matters even without a blockade. Holding the Mocha coast gives the Houthis the eyes, ears and pressure to monitor international trade through a waterway responsible for 10 to 12 percent of global trade. RBC analysts including Croft wrote that a resumption of full-blown Saudi-Houthi war "would be a potential catalyst for our high oil price scenario", noting Mokha would let the group project disruptive capability further south toward the narrowest points of the waterway.

Note also who gets threatened and who does not. Houthi spokesman Mohammed Abdulsalam said Red Sea navigation was safe for all shipping companies except Saudi vessels. A selective threat is still a general cost, because insurers price the water, not the flag.

Channel One: War Risk Insurance

How the premium works

Standard marine hull cover excludes acts of war. To sail into a listed high risk area, an owner buys an additional war risk premium, quoted as a percentage of the hull's insured value, per transit, for a stated number of days. The Joint War Committee in London designates which waters count as high risk, and underwriters price from there.

The repricing has been violent. Before the war the premium stood at roughly 0.25 per cent of hull value, about $250,000 for a $100 million tanker; rates have since ranged between 3 and 10 per cent, meaning $3 million to $10 million for the same vessel. Marsh's global head of marine, cargo and logistics told Platts in July that additional war risk premiums in the region had jumped from 1 to 3 per cent of hull value weeks earlier to 7.5 to 10 per cent. Red Sea transits have historically been cheaper to insure than Hormuz, but they move in the same direction. Renewed Houthi attacks have pushed Bab al-Mandeb transits to around 0.5 per cent of hull value, with additional Red Sea premiums in the 0.5 to 1 per cent band and about 0.1 per cent for the Red Sea off western Saudi Arabia.

Why withdrawal of cover matters more than the price of cover

A premium can be passed on. An absence of cover cannot. Underwriters have grown increasingly reluctant to provide coverage at all, and strikes on tankers have prompted some shipping companies to halt operations through the strait entirely. Some owners refuse to call particular ports at any price, which shrinks the pool of vessels trading in affected corridors. That is the real mechanism by which a chokepoint closes: not a decree, but a quiet, distributed refusal by the people who carry the risk.

Channel Two: Rerouting and Ton-Miles

The alternative to paying peak premiums is to go the long way. Many owners and charterers have rerouted around the Cape of Good Hope to avoid the Red Sea and Suez, accepting longer voyages, higher fuel burn and elevated time charter equivalents rather than paying peak premiums, which tightens vessel supply on traditional routes and pushes insurance rates higher still.

The key concept here is the ton-mile: one tonne of cargo moved one mile. Tanker demand is measured in ton-miles rather than barrels, because a fleet is a stock of capacity and every extra mile consumes some of it. Send the same barrels around Africa instead of through Suez and you have not lost a barrel, but you have effectively shrunk the world tanker fleet, because each cargo now occupies a ship for weeks longer. Fewer available ships means higher freight for everyone, including cargoes nowhere near the war.

Tanker economics are quoted in Worldscale points. Worldscale is a standardised index in which WS 100 represents a recalculated base rate for each route and actual rates are expressed as a percentage of that base, with the TD3C benchmark for Gulf to East Asia very large crude carriers published daily by the Baltic Exchange and used as the basis for freight derivatives traded on ICE and CME. The level those benchmarks have reached tells the story. By mid-2026, shipping crude from the Persian Gulf to China via Hormuz was assessed at roughly $78 per metric tonne, about four times the five-year pre-conflict average, with war risk insurance alone accounting for more than $20 per tonne, and these costs feed directly into freight rates, then refinery margins, commodity prices and consumer inflation. At standard conversion, $78 a tonne is on the order of $10 a barrel simply to move the oil.

Channel Three: The Risk Premium in the Price

Freight and insurance are real costs. The larger part of a chokepoint move is usually something else: the market paying up for the possibility of a loss that has not happened yet.

Crude is priced today for delivery later, so the forward price has to embed a probability distribution of future supply. When the odds of a prolonged closure rise, the whole curve lifts even if current loadings are unchanged. Capital Economics' Kieran Tompkins described prices earlier in the crisis as reflecting two opposing scenarios, a quick resumption of flows and a prolonged closure, and argued that if deadlock persisted traders would be forced to raise the implied chance of prolonged closure, lifting front-month futures and renewing attention on a tipping point at which the market's ability to absorb the shock through inventory drawdowns is exhausted.

Inventories are the shock absorber. Barrels already floating or in tank can cover a gap for a while, which is why the first weeks of a disruption often look surprisingly calm. The price accelerates when the market starts counting how many weeks of cover are left rather than how many barrels are missing today.

The Saudi Squeeze

The Red Sea detour was the single most important reason this year's Hormuz crisis did not become a 1970s-style event. The East-West pipeline was ramped up to its full 7 million barrels a day in late March, with 2 million barrels a day of the pipeline volume going to Saudi refineries, but an April drone strike on a pumping station cut throughput by about 700,000 barrels a day, the September strikes disrupted Red Sea facilities, and independent analyses put actual Yanbu loading capability at roughly 3 to 4.5 million barrels a day; the route only partly offsets the loss of a strait that carried about 15 million barrels a day of crude shipments before the war, but it is one reason prices have not hit the crisis highs of previous supply shocks.

Two constraints define how much comfort that provides.

• Pipeline capacity is not port capacity. Aramco typically ships around 2 million barrels a day of crude to its Red Sea refineries, leaving roughly 5 million barrels a day of pipeline capacity for exports from Yanbu, but the port may not be able to handle such volumes.
• There is no third route. Kuwait and Qatar have no comparable overland alternatives, and their exports still depend on a degraded Hormuz through which flows are expected to increase only gradually, while Iraq retains the Iraq-Turkey pipeline to Ceyhan as an overland outlet.

And the western outlet is itself now under fire. Houthi drone and missile attacks on Aramco installations and other energy infrastructure in southern Saudi Arabia wounded at least 73 people.

Where It Lands

Crude is a wholesale abstraction. Diesel is where a freight shock becomes a household and business cost, because diesel moves the trucks, trains, tractors and ships that move everything else. As prices rose on September 10, the US national average gasoline price added another five cents overnight to $4.27 a gallon and diesel rose four cents to $5.98. AAA reported on Friday 11 September that the national average diesel price had passed $6 for the first time ever, at $6.06, and GasBuddy said it was the third record in a week, well above the June 2022 record of $5.816. That is an increase of about 59 per cent since the war with Iran began in late February, when diesel stood at $3.76 nationwide.

From there it becomes a monetary problem. KPMG chief economist Diane Swonk called the latest producer price report worrisome because the increases were heavily in diesel and heating fuel, which tend to feed into other prices with a lag and can be extremely broad based. The rise in oil prices has added to inflation and rate-hike nerves, with the 10-year Treasury yield surging about 10 basis points, that is a tenth of a percentage point, to as high as 4.95 per cent intraday, its highest since October 2023. Traders moved to price a roughly 71 per cent chance that the Federal Reserve raises rates at its meeting the following week, up from about 61 per cent immediately before the August producer price report, according to fed funds futures pricing. The European Central Bank raised rates on the same day, signalling it expected inflation to stay above its 2 per cent target for an extended period.

Key Takeaways for Investors

• A chokepoint does not need to be blocked to be expensive. Insurance pricing and underwriter withdrawal do the work, and both respond to territorial control rather than to actual attacks.
• War risk premiums are the fastest-moving part of the chain. Moving from a quarter of a per cent of hull value to high single digits turns a routine transit cost into millions of dollars per voyage.
• Rerouting converts a supply problem into a capacity problem. Extra ton-miles absorb tanker availability globally, so freight rises on routes far from the conflict.
• The Red Sea detour was the shock absorber for the Hormuz closure. Pressure on Bab el-Mandeb removes the hedge, which is why both waterways being contested is qualitatively different from either one alone.
• Refined products, especially diesel, are the transmission belt into consumer inflation and therefore into rate expectations and bond yields.
• Watch the insurance market and the Joint War Committee designations as leading indicators, not headlines about hulls being hit.

Conclusion

For most of this year the oil market has been trading a single question: when does Hormuz reopen. The Mocha advance replaces it with a harder one. A peninsula with two exits offered redundancy, and redundancy is what kept a genuine supply crisis from becoming a genuine price crisis. Remove it and the market is no longer pricing a disruption with a known workaround; it is pricing a system with no slack, where the marginal barrel's cost is set by whoever is willing to underwrite the last hull through the gap.

That is a different kind of risk from the one central banks are equipped to handle. A shortage can be met with inventories, spare capacity and diplomacy. A repriced ocean cannot, because the cost sits in freight and insurance contracts that will not revert simply because a ceasefire is announced. The bill arrives as diesel, and diesel arrives in everything.