Hodeidah explosions signal renewed Yemen war as oil risk surges

Yemen's strategic port city of Hodeidah was rocked by multiple explosions on July 24, the latest escalation in a conflict that threatens to choke Red Sea oil shipments and reignite a frozen war.

Iran-aligned Houthi forces have built up along front lines from the Red Sea coast to the Saudi border, targeting a Saudi airport and striking two Saudi tankers in the Red Sea, pushing crude premiums to two-month highs.

"Since 2022, these are the most serious preparations for a conflict I've seen," said Baraa Shiban, a Yemeni analyst and associate fellow at the Royal United Services Institute in London.

The spot premium for Dubai crude doubled to $12.74 a barrel on July 23, while Oman's premium rose to $12.62 — both the highest since late May, according to Reuters data. Brent's premium over Dubai settled at $13.22, the widest since May 4. The Houthi naval blockade, announced July 20 and enforced by attacks on Saudi tankers, threatens millions of barrels of oil pumped daily via pipeline to Saudi Arabia's Red Sea coast — a route used to bypass Iran's near-total blockade of the Strait of Hormuz.

The escalation risks derailing Saudi Arabia's Vision 2030 transformation plan, which includes hosting Expo 2030 and the 2034 FIFA World Cup. "There is increasingly a feeling that peace with the Houthis is unattainable, and that a delayed war might prove costlier still," said Farea al-Muslimi, a research fellow at Chatham House's Middle East and North Africa program.

The explosions in Hodeidah — a strategic port city that serves as the primary entry point for humanitarian aid and commercial goods into Houthi-controlled Yemen — follow a series of escalatory moves that have shattered a fragile 2022 ceasefire. The Houthis said their July 13 attack on a Saudi airport responded to a Saudi strike on an airport under their control, while the naval blockade was framed as a response to a Saudi siege on Yemen, which Riyadh has denied.

Iran's role has become increasingly visible. On July 13, Iran flew between 10 and 21 Islamic Revolutionary Guard Corps commanders, military advisers and missile- and drone-related equipment to Yemen aboard a Mahan Air flight, according to sources familiar with the matter. The flight initially bound for Sanaa diverted to Hodeidah after the capital's airport came under attack by Saudi-backed Yemeni government forces.

Oil risk premium widens

The Houthi attacks on Saudi tankers in the Red Sea have added a new layer of risk to global oil markets already strained by the Iran conflict. The Bab al-Mandeb strait, which controls access from the Red Sea to the Indian Ocean, remains open to non-Saudi shipping per a senior Houthi official, but the threat of further attacks has forced some Saudi cargoes to reroute around Africa, lengthening voyage times and tightening spot supply.

Energy Aspects said it expects premiums to rise further as the tanker attacks are likely to divert more cargoes and discourage shipping through the Bab el-Mandeb Strait. The premium for Abu Dhabi's flagship Murban crude surged to $19.04 a barrel on July 23, the highest since April 7, amid tightening supplies of light-sour crude.

Diplomatic efforts falter

UN special envoy for Yemen Hans Grundberg said he had returned from two trips to Oman and one to Saudi Arabia "to discuss a way forward towards de-escalation and greater stability." But he acknowledged that "recent events have taken Yemen in the opposite direction." A Western diplomat said pessimism was growing about the prospects for a negotiated resolution, as mediation efforts by the UN, Oman and Pakistan have failed to halt the escalation.

The last time Houthi forces targeted Saudi infrastructure at this scale was in 2022, before the ceasefire was brokered. That truce paused a war that killed hundreds of thousands through fighting and famine. The current buildup along front lines spanning the Houthi-controlled northwest — from the Red Sea coast to the Saudi border — suggests both sides are preparing for a return to active hostilities.

US President Donald Trump said on July 23 he would hold Iran accountable for any Houthi attacks, as the US carried out a 13th consecutive night of airstrikes on Iran. The political landscape has shifted in Saudi Arabia's favor since it first intervened in 2015, when civilian casualties drew international outcry. Houthi attacks on Israel and international shipping since October 2023, along with the detention of dozens of UN staff, have hardened international opinion against the group. Should Riyadh intervene again, "there will be much, much less scrutiny," Shiban said.

This article is for informational purposes only and does not constitute investment advice.