Houthi Blockade Disrupts Saudi Oil Flows Amid Ongoing Conflict

The ongoing conflict between Saudi Arabia and Yemen's Houthi rebel movement has taken a significant turn, with the Houthis declaring a maritime embargo against Saudi Arabia on July 19. The move was in retaliation for Saudi Arabia's restrictions on Yemen and an alleged attack on Sanaa International Airport.

Two oil tankers, Encelia and Layla, were targeted by the Houthis on July 22. While the Encelia was damaged, there is no confirmation of damage to the Layla.

Saudi Arabia responded with airstrikes against Yemen's port of Hodeidah, further escalating tensions. The conflict has introduced uncertainty in the oil and tanker business, with market participants trying to determine how to respond.

In a previous attempt to circumvent the closure of the Strait of Hormuz, Saudi Arabia increased exports through its East-West Pipeline, moving crude from its eastern producing system to Yanbu on the Red Sea. However, this has transferred the country's maritime exposure to another chokepoint, the Bab el-Mandeb Strait.

The situation around the Bab el-Mandeb is complex, with the Houthis claiming it is open except for vessels that called on Saudi Arabia. Despite this, at least two Chinese-controlled VLCCs carrying Saudi crude safely transited the strait, indicating that the situation may not be as black-and-white as initially thought.