Dual Chokepoint: Hormuz and Bab al-Mandeb Squeeze Global Oil as Brent Nears $97

North Watch ·July 27, 2026 ·8 min read

Coastal Red Sea city of Aqaba with dramatic desert mountains rising behind the waterfront, illustrating the strategic geography of the Bab al-Mandeb chokepoint.

Photo by Thắng-Nhật Trần on PexelsPhoto by Wolfgang Weiser on PexelsPhoto by Engin Akyurt on Pexels

Two straits, one crisis

The world’s two most critical oil-shipping chokepoints are under simultaneous pressure, and the market is repricing the risk in real time. Brent crude closed Friday at $96.78 per barrel, down 3.88% on the session but still up roughly 35% from its early-July low near $72, as maritime attacks resumed in the Strait of Hormuz and Houthi forces opened a new front in the Red Sea^[1]^[2]. WTI settled at $89.31^[2].

The scale of the disruption is visible in the traffic data, not just the headlines. The pre-war average through the Strait of Hormuz was roughly 138 ships per day. In the first week of July, that had already fallen to a daily average of 29 ships — and over the past week, it dropped further to just 13 ships per day, according to HSBC analysts^[1]. On July 23, only a single tanker crossed the strait^[3]. Gulf exports through the strait have collapsed by approximately 82%^[4].

Meanwhile, Houthi forces in Yemen have declared a maritime embargo against Saudi Arabia, driving Bab al-Mandeb oil exports to near zero and forcing Saudi Arabia to reroute its west-coast exports through the Suez Canal^[5]^[3]. At least seven oil tankers made sharp U-turns near Yemen after the embargo was announced^[3]. The Houthis then attacked two Saudi oil tankers in the Red Sea, hitting the Encelia and starting a fire on board^[3].

On Sunday, Houthi forces escalated further, firing missiles and drones at two of Saudi Arabia’s most strategically important oil facilities on the Red Sea — an Aramco refinery in Jizan and oil installations in Yanbu, Saudi Arabia’s principal west-coast export gateway^[6]. A large column of smoke was seen rising from the Jizan refinery after the attack^[6].

The August 16 deadline

Rystad Energy has revised its US-Iran scenario framework, raising the combined probability of outcomes involving no substantive agreement to 55 percent — stalemate at 35% plus renewed fighting at 20%^[1]. The firm identifies August 16, when the 60-day memorandum of understanding negotiation window expires, as the critical near-term date for oil markets^[1].

The base case — a narrow deal at 40% probability — would sustain a $5-to-$10-per-barrel geopolitical risk premium and see Hormuz traffic recover to around 10 million barrels per day by mid-August. But under the stalemate scenario, now the second most likely outcome, the premium rises to $10–$15 per barrel and strait throughput crawls from roughly 2.5 million bpd in August toward approximately 8 million bpd by November. Under renewed fighting, the worst case at 20% probability, the premium reaches $15–$20 per barrel, and even then Rystad does not project complete paralysis — dark fleet movements and selective passage could push traffic toward 3.5 million bpd by November^[1].

Rystad SVP Jorge Leon was candid about the fragility of the base case: “The narrow deal is still our base case, but it has become a considerably less comfortable one”^[1].

The refined products squeeze is worse than crude

The crude price is getting the headlines, but HSBC analysts — including chief economist Paul Bloxham — warned that “the crude price is far from all that matters”^[1]. Limited crude feedstock availability, reduced output from Middle East refineries, no slack in the global refining system, and depleted product inventories are all piling on simultaneously. The benchmark 3-2-1 crack spread — a widely watched measure of refining profitability — recently surged to its highest level on record. The spread between US diesel and WTI crude has now exceeded levels seen during the acute phase of the Russia-Ukraine war^[1].

The refined product crisis is the quiet indicator that should worry markets more than the crude headlines. When crack spreads hit records, it means the bottleneck has shifted from raw barrels to the infrastructure that turns them into usable fuel — and that bottleneck is far harder to resolve through reserve releases or supply rerouting.

Shipping costs and insurance premiums flash red

The cost of keeping oil moving through these chokepoints has exploded. War-risk insurance premiums for vessels transiting Hormuz and the Red Sea have surged approximately 1,000%^[7]. Rerouting a single Saudi oil shipment around the disrupted Bab al-Mandeb strait now costs an additional $2.5 million and adds a month to the voyage^[7]. Some reroutes are costing as much as $5 million extra per shipment^[7].

These are not abstract costs. They feed directly into delivered energy prices worldwide, and they persist even if the shooting pauses — insurers and shipowners price risk on a lag, and once premiums rise, they tend to stay elevated for months.

A war on three — now four — fronts

The US-Iran conflict has opened multiple fronts simultaneously:

Iran/Hormuz: The US had conducted 13 consecutive waves of overnight air strikes against Iran since July 11, after the IRGC attacked tankers in the Strait of Hormuz^[6]. A pause in US strikes has held for two consecutive nights, with tentative mediated talks via Oman continuing, though an Al Jazeera reporter in Tehran noted “not much progress yet” due to “fundamental differences” and deep mistrust^[6].
Red Sea/Yemen: The Houthi-Saudi truce that held since 2022 collapsed this month after an attack on Sanaa airport^[6]. Saudi Arabia launched air strikes on the Houthi-held city of Hodeidah on Friday, and the Houthis retaliated with attacks on Aramco facilities^[6].
Caspian Sea: Ukraine struck Iranian vessels in the Caspian Sea on Saturday, killing one sailor. Iran summoned Ukraine’s chargé d’affaires and called it a “hostile and criminal” act. Ukrainian President Zelenskyy said Kyiv struck “vessels used in military cargo shipments involving Iran, as well as a warship”^[6].
Kazakhstan/CPC pipeline: Drone strikes linked to the Russia-Ukraine war have slowed Kazakh oil flows through the Caspian Pipeline Consortium, which accounts for about 80% of Kazakhstan’s oil exports^[5].

Zelenskyy further claimed that since the start of July, Kyiv had detected “active Russian satellite surveillance of the Gulf states and US military facilities located there,” with satellite images passed to Tehran to help the IRGC identify targets for ballistic missile and drone attacks^[6].

A second trade-policy shock layering on top

While the geopolitical escalation dominates, a second supply-chain shock hit the same week. The Trump administration finalized new tariffs of 10% to 12.5% on 60 trade partners covering 99.4% of US trade, effective 12:01 a.m. Friday^[8]. The duties, imposed under Section 301 of the Trade Act over alleged forced labor violations, effectively replace the expiring 10% global tariffs^[8]. Separately, 25% tariffs on most Brazilian imports took effect July 22, and 50% tariffs on a range of Canadian goods are set to begin next month^[8].

The combination matters: an energy supply shock raising input costs at the same time a broad tariff wall raises import costs is a stagflationary signal. Energy-led inflation passes quickly into transport, manufacturing, and food costs^[9], while tariffs add a second layer to goods prices. If both forces persist, the case for tighter monetary policy strengthens even as growth slows.

The market tell

The S&P 500 energy sector rose 8.9% over the past 24 hours, closing at 914.32, as the dual-chokepoint threat pushed a familiar risk premium back into the sector^[9]. The move caps a run that has lifted the energy group 24.83% over 90 days and 32.56% over the past year — a stretch driven less by demand growth than by a steady sequence of supply threats^[9]. The S&P 500 broader index had been pushed down 0.79% in a single session during the mid-July escalation^[10].

The pattern is classic: equities reflect the possibility of disruption well before any actual barrel is physically lost, and energy equities move sharply on days when no supply has been interrupted. The sector at 914.32 is pricing the tension, not its resolution^[9].

What to watch next

August 16 MoU deadline: This is the hard date Rystad identifies as the inflection point. If no framework is reached, the market will reprice from “narrow deal” to “stalemate” — a shift that implies another $5–$10 per barrel of risk premium^[1].
Hormuz tanker traffic: Watch the daily crossing count. A recovery from 13 ships/day toward the 29 ships/day seen in early July would signal de-escalation. A further drop toward single digits would signal the stalemate or renewed-fighting scenarios are materializing^[1].
Bab al-Mandeb status: If the Houthi maritime embargo on Saudi Arabia holds and Bab al-Mandeb remains effectively closed to oil traffic, Saudi rerouting through Suez adds cost and time to global supply regardless of what happens at Hormuz^[5]^[3].
Diesel crack spreads: The record 3-2-1 crack is the leading indicator for whether the supply shock is broadening from crude into the real economy. If diesel cracks continue to widen, the inflation transmission accelerates^[1].
Caspian Sea escalation: Ukraine’s strike on Iranian vessels introduces a new theater. If Iran retaliates against Ukrainian or Western shipping in the Caspian, the conflict’s supply-chain geography widens again^[6].
Tariff + energy overlap: Watch whether the combination of the new 60-country tariff regime and elevated oil prices begins to show up in inflation data. A dual supply shock — energy and trade — is harder for central banks to look through than either in isolation^[8]^[9].