Two-Chokepoint Oil Crisis: Houthi Strikes on Saudi Aramco Compound the Hormuz Squeeze
The US-Iran conflict has entered its most dangerous phase — not because strikes are intensifying, but because the war is spreading to a second critical oil chokepoint even as Washington pauses to let diplomacy breathe. On Saturday, Yemen’s Iran-aligned Houthis fired missiles and drones at Saudi Aramco facilities in Jizan and Yanbu, the latter now Saudi Arabia’s main Red Sea oil export hub and a critical bypass route for crude shut out of the Strait of Hormuz.[1] The attack came during the first lull in 13 consecutive nights of US airstrikes on Iran — a pause US Ambassador to the UN Mike Waltz described as “giving talks some space.”[1]
That pause is fragile. A senior Iranian source told Reuters that Tehran’s position remains “attack for attack” and that the prevailing view is the halt is “tactical rather than genuine.”[1] With Brent crude having neared $100 per barrel before retreating to $96.78 on Friday — still up more than 18% in roughly two weeks — markets are pricing a conflict that has no clear off-ramp.[2][3]
The Red Sea Front Opens
Saturday’s Houthi strikes on Aramco represent the most consequential widening of the war since Iran blockaded the Strait of Hormuz five months ago. A large column of smoke rose from the direction of the Aramco refinery in Jizan, near the Yemeni border, which can process up to 400,000 barrels of crude oil daily.[1] Two Asia-based trading sources said they had been informed of potential damage to fuel and oil storage sites at Jizan, though Aramco has not commented publicly.[1]
In Yanbu, two missiles aimed at oil installations were intercepted.[1] Yanbu has become a critical route for Saudi oil skirting the Hormuz blockade — and the Houthis have declared a naval blockade of Saudi Arabia, with leader Abdul Malik al-Houthi saying all Saudi oil facilities could be targets.[1] Saudi Arabia has already shifted to the Suez Canal as Houthi attacks drove Bab el-Mandeb oil exports to near zero.[4]
The Red Sea opening means the conflict now threatens both ends of Saudi Arabia’s oil export infrastructure simultaneously. Hormuz carries 20% of the world’s oil normally; the Bab el-Mandeb Strait had become even more vital for Saudi exports precisely because Hormuz was disrupted.[5] The fact that the Yemen ceasefire that held since 2022 has now broken down — with both sides in Yemen’s civil war mobilizing forces along the front — suggests this second front is not a one-off.[1]
The Hormuz Squeeze by the Numbers
The traffic data tells the story of how thoroughly the strait has been choked. According to HSBC, the pre-war average through the Strait of Hormuz ran around 138 ships per day. In the first week of July, that had fallen to 29 — and over the past week, it dropped further to just 13 ships per day.[2] Gulf exports have collapsed 82% as the conflict reroutes global oil flows.[4]
The US naval blockade against Iran compounds the squeeze. CENTCOM said that as of July 25 it had redirected 12 commercial vessels trying to run the blockade, disabled two that did not comply, and boarded two more to ensure compliance.[3] Iran’s IRGC Navy has counter-claimed “complete authority” over the strait, saying it forced six ships to anchor in the last 24 hours.[3]
Rystad Energy now puts the combined probability of outcomes involving no substantive US-Iran agreement at 55% — stalemate at 35% and renewed fighting at 20% — against a 40% base case for a narrow deal and just 5% for full resolution.[2] The firm identifies August 16, when the 60-day memorandum of understanding negotiation window expires, as the critical near-term date for oil markets.[2]
Even Rystad’s base case carries a $5–$10 per barrel geopolitical risk premium. A stalemate would add $10–$15; renewed fighting, $15–$20.[2]
The Caspian Sea Wildcard
In a development that risks fusing the Middle East and Ukraine conflicts, Ukraine struck Iranian vessels in the Caspian Sea on Saturday, killing one sailor and injuring several others.[3] Ukrainian President Zelenskyy said the targets included “vessels used in military cargo shipments involving Iran, as well as a warship.”[3]
Iran summoned Ukraine’s chargé d’affaires in Tehran to protest what it called a “hostile and criminal act,” and Foreign Minister Araghchi said the attack “cannot go unanswered.”[3] The strike takes on a wider dimension because Zelenskyy also noted that Russia has been passing satellite observations to Iran to enable it to direct strikes in the Middle East.[1] That intelligence-sharing link means a Ukrainian attack on Iranian assets is not just a Ukraine-Russia front — it is an attack on a node in the supply chain feeding the Iran war.
The Refined Products Squeeze: The Less-Told Story
Crude prices dominate headlines, but HSBC analysts warned that “the crude price is far from all that matters.”[2] Refined product supplies have been heavily disrupted by limited crude feedstock, reduced output from Middle East refineries, no slack in the global refining system, and depleted product inventories.[2]
The benchmark 3-2-1 crack spread — a measure of refining profitability — recently surged to its highest level on record.[2] The spread between US diesel and WTI crude has exceeded levels seen during the acute phase of the Russia-Ukraine war, with jet fuel and sulfur prices climbing alongside.[2] Diesel is the sharpest pressure point, and it flows directly into transportation and logistics costs across the global economy.
New Tariffs on 60 Countries: A Second Inflation Front
Compounding the energy-driven inflation pressure, the Trump administration imposed new tariffs of 10% to 12.5% on imports from 60 countries accounting for 99% of US imports, effective Friday.[6] The tariffs use a Section 301 legal justification, charging that the targeted countries have inadequately enforced prohibitions on goods produced with forced labor.[6]
This is the administration’s latest expansive protectionist measure, layered onto an economy already absorbing rising gasoline prices from the Iran conflict. The S&P 500 fell 0.79% in a single session earlier in July after Trump announced the renewal of the Hormuz blockade.[7] With midterm elections approaching in November and voters angry about high food and gasoline prices, the political clock adds another variable to the timeline.[5]
Market Reactions: Energy Rallies, Defense Divides
Energy stocks have been the direct beneficiaries. The S&P 500 energy sector rose 8.9% over a 24-hour period, closing at 914.32 — capping a 90-day run of 24.83% gains driven less by demand growth than by a steady sequence of supply threats.[7] On Friday’s close (July 24), the Energy Select Sector SPDR Fund (XLE) finished at $59.62, up 0.40%.[8] Among individual names, ExxonMobil (XOM) closed at $156.94 and Chevron (CVX) at $194.79, both modestly higher.[9]
Defense stocks tell a more divided story. Lockheed Martin (LMT) rose 2.47% to $582.65, Northrop Grumman (NOC) gained 1.64% to $542.24, and RTX added 1.74% to $212.79 on Friday.[8] Yet Fortune reported that defense tech investors who expected the Iran war to be a windfall have faced a “bloodbath” instead — a reminder that war-driven narrative and equity performance diverge when valuations were already stretched and when the duration and scope of spending remain uncertain.[7]
The broader market has shown resilience despite the oil pressure. The S&P 500 closed Friday at 7,411.98, essentially flat.[8] But that calm masks a fragile equilibrium: Brent pulled back 4% on Friday only because of a report that Pakistan, backed by China, is seeking to restart US-Iran talks.[3] Remove that diplomatic thread and the two-chokepoint premium returns.
What to Watch Next
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August 16: The 60-day MoU negotiation window between the US and Iran expires. Rystad calls this the critical near-term date for oil markets.[2] Whether any political arrangement holds after this date determines whether the $5–$10 narrow-deal premium holds or the $10–$20 stalemate/fighting premium takes over.
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Netanyahu’s Washington visit: Israel’s prime minister is scheduled to visit Trump next week.[5] Israel has been “notably absent” from the renewed US strikes, and Netanyahu said Sunday the war ends when Iran’s regime is “either toppled or it’s sufficiently weakened.”[3] If Israel re-enters the military campaign, the conflict escalates to a level markets have not yet priced.
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Bab el-Mandeb and Yemen’s civil war: The breakdown of the 2022 Yemen ceasefire and Houthi mobilization along the front suggests the Red Sea chokepoint disruption is structural, not temporary.[1] Watch for whether Saudi Arabia’s Suez reroute can absorb the volume, and whether Aramco’s Jizan refinery sustained lasting damage.
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Caspian Sea escalation: Iran’s pledge that Ukraine’s strike “cannot go unanswered” opens a vector for retaliation that could draw Russia more directly into the Middle East conflict.[3] Any Iranian response against Ukrainian assets — or against shipping in the Caspian — would further compress global crude supply options.
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US munitions stockpiles: Vice President Vance and Joint Chiefs Chairman Gen. Caine both raised concerns about depleting Patriot interceptor and air defense munitions stocks with Trump on Friday.[1] A munitions constraint could limit the duration and intensity of any renewed US strike campaign — and signal to Iran that Washington’s capacity for sustained escalation has a ceiling.
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Diesel and refined product cracks: The record crack spreads mean that even if crude prices stabilize, the pass-through to transportation and logistics costs accelerates.[2] Watch US diesel futures and Gulf Coast refining margins as a leading indicator of inflation pressure heading into the November midterms.
Sources
- U.S. forgoes strikes on Iran, but conflict in the Red Sea escalates
- Rystad Energy raises probability of no U.S.-Iran deal to 55 percent as Brent crude climbs…
- Ukraine strikes Iranian vessels, Tehran accuses Kyiv of 'hostile act'
- Mideast oil may soon have no way out amid wars, but the crisis in refined products is eve…
- A pause in US-Iran fighting and a push for talks but uncertainty remains | AP News
- Actions by the United States in the Investigations under Section 301 of the Trade Act of…
- Defense tech investors thought the war in Iran could make them millions. Instead, they've…
- Quote: LMT
- Quote: XOM