Two Chokepoints, One Oil Market: How Houthi Blockade and Hormuz Escalation Are Reshaping Risk

The oil market now faces what Standard Chartered analysts have called a “two-chokepoint problem”^[1] — and the second chokepoint opened this week.

On Monday, Yemen’s Iran-backed Houthi rebels announced a “maritime embargo” against Saudi Arabia, threatening to attack Saudi-linked vessels transiting the Bab el-Mandeb Strait at the southern end of the Red Sea^[2]. Within hours, at least seven oil tankers made U-turns close to Yemen rather than risk the passage^[2]. By Tuesday, no crude oil tankers had been seen transiting Bab el-Mandeb since the Houthis emailed shipowners to tell them not to cross^[1].

The timing is the problem. The Bab el-Mandeb Strait had become a critical bypass for Saudi crude after the resumption of hostilities between the US and Iran effectively closed the Strait of Hormuz to most tanker traffic. Iran has struck multiple oil tankers in recent days, and US Central Command has carried out strikes on Iran for 11 consecutive nights^[3]. Saudi Arabia had diverted roughly 4 to 5 million barrels of oil per day from the Persian Gulf through its East-West pipeline to the Red Sea port of Yanbu^[4]. In the week ending July 17, the kingdom shipped a record 5.9 million barrels a day from Yanbu’s two terminals^[1].

If that Red Sea route becomes inoperable, the supply disruption gets materially worse. Helima Croft, head of global strategy at RBC Capital Markets, warned that “if that route becomes inoperable, then the oil supply disruption becomes more serious and we start talking again about a ‘no way out’ situation”^[4]. Dan Pickering, chief investment officer at Pickering Energy Partners, estimates a full blockade of Bab el-Mandeb could push oil $5 to $10 a barrel higher — above $100^[4].

Brent breaks $95 as the second front opens

Brent crude surged roughly 4-5% on Wednesday, briefly topping $95 a barrel for the first time in six weeks^[5]. The move came as Secretary of State Marco Rubio said Iran does not appear “serious” about reaching a deal, and President Trump threatened to destroy an Iranian bridge or power plant for every attack on shipping in the Strait of Hormuz^[3]. Tehran responded with an “eye for eye” warning^[6].

The escalation pattern is the indicator to watch. Oil has risen more than $20 a barrel this month since war broke out again in the Middle East^[4]. Brent has spiked over 30% in July alone^[1]. The market is not just pricing the current disruption — it is pricing the probability that both chokepoints close simultaneously and the workaround that has kept Saudi oil flowing no longer works.

The USO oil ETF closed up 2.2% at $131.68 on the session^[7]. The Energy Select Sector ETF (XLE) gained 1.2% to $59.20^[7], while the Technology Select Sector ETF (XLK) slipped 0.3% to $180.27^[7]. The S&P 500 (SPY) was roughly flat at $747.41, and the Nasdaq 100 (QQQ) declined 0.5% to $705.35^[7] — a quiet rotation out of growth and into energy that has been building as crude prices climb.

Energy and defense stocks catch the bid

The sector tell is visible in the quote snapshots:

ExxonMobil (XOM) closed up 1.8% at $154.45 and extended gains to $155.17 after hours^[7]. Chevron (CVX) added 1.0% to $192.98^[7]. ConocoPhillips (COP) rose 1.1% to $118.79^[7]. On the defense side, Lockheed Martin (LMT) gained 1.5% to $514.50^[7] — the kind of move consistent with a market pricing prolonged military engagement rather than a quick de-escalation.

The Energy Select Sector ETF (XLE) outperformed the Technology Select Sector ETF (XLK) by roughly 1.5 percentage points on the day^[7], a continuation of the rotation pattern visible since oil began its July ascent. This is not yet a broad risk-off move — the S&P 500 was essentially flat^[7] — but it is a sector-level signal that institutional positioning is adjusting to a higher-for-longer oil price.

A second shock: the tariff wall rebuilds on a new legal foundation

While the oil market absorbs the two-chokepoint crisis, a second policy shock is arriving on a different track. The Trump administration’s 10% global tariff, imposed under Section 122 of the Trade Act of 1974, is set to expire at 12:01 a.m. ET on Friday, July 24^[8]. But U.S. Trade Representative Jamieson Greer signaled that replacement tariffs are imminent: “We expect to see some action soon”^[8].

The new duties would be imposed under Section 301 — a different legal authority that trade experts believe is more durable than the IEEPA-based regime the Supreme Court struck down in February. USTR has proposed tariffs of up to 12.5% on imports from 60 economies, covering approximately 99% of U.S. trade, in response to alleged forced labor issues^[8]. The economies targeted include China, the European Union, Japan, India, South Korea, Vietnam, Taiwan, Mexico, and dozens of others^[8].

Separately, 25% tariffs on most Brazilian imports took effect Wednesday^[8], and Trump signed proclamations for 50% tariffs on a range of Canadian goods in 30 days under Section 338 of the Tariff Act of 1930^[8]. Canadian Prime Minister Mark Carney said the tariffs violate the USMCA and vowed that “all options are on the table”^[8].

The tariff rebuild matters for the market in two ways. First, if durable Section 301 tariffs replace the expiring Section 122 duties at similar or higher rates, the effective tariff rate on U.S. imports stays elevated — sustaining cost pressure on consumer goods, industrials, and supply chains already strained by higher oil. Second, the forced-labor legal basis makes these tariffs politically harder to roll back. As Tiffany Smith of the National Foreign Trade Council noted, “it’s much harder” for a future administration “to roll back tariffs that are intended to help combat forced labor”^[8].

What the market is telling us

The combined signal from the two shocks is a market quietly repositioning for a stagflationary drift — higher energy costs from a dual-chokepoint crisis layered onto sustained tariff pressure on imported goods. The visible evidence:

• Brent crude above $95, up 30%+ in July^[1][5], with analysts flagging $100+ if Bab el-Mandeb fully closes^[4]
• Energy sector outperforming tech by ~1.5 percentage points on the day^[7]
• Defense contractor Lockheed Martin bid higher alongside oil^[7]
• The S&P 500 essentially flat — not a panic, but a rotation^[7]
• Oil at a six-week high with the US conducting an 11th consecutive night of strikes on Iran^[5]

What would have to be true for this to resolve quickly? The Houthis would need to lift the maritime embargo, Iran would need to stop attacking ships in Hormuz and return to negotiations that Rubio says Tehran is not serious about, and the ceasefire that collapsed weeks ago would need to be rebuilt. None of those appear imminent. The Houthis have not struck a ship since last September per the EU’s count^[1], but the threat has been enough to divert tanker traffic — a market pricing the risk, not the damage already done.

What to watch next

1. Bab el-Mandeb tanker traffic: Whether any crude tankers resume transits, with or without transponders. The EU naval mission has limited escort capacity and has advised Saudi- and US-linked vessels to avoid the area^[1]. A sustained absence of tanker traffic through the strait would confirm the “no way out” scenario.

2. Trump’s infrastructure threat: The president’s pledge to destroy an Iranian bridge or power plant for every Hormuz attack^[3] is an explicit escalation ladder. If Iran fires on another ship and the US follows through on the threat, it represents a shift from military-to-military strikes to civilian infrastructure targeting — a qualitative escalation that markets have not yet fully priced.

3. Friday’s tariff expiry: Whether the Section 122 duties lapse and what replaces them. Greer’s “expect action soon”^[8] suggests the transition is designed to be seamless, but a gap between regimes — or a Section 301 tariff set higher than 12.5% — would add a fresh risk premium.

4. Yanbu port utilization: Only two of seven berths at Yanbu were occupied on July 22^[1]. If loadings decline sharply, it confirms that the Houthi threat is already suppressing Saudi export volumes, not just diverting routes.

5. Diesel spreads: Saudi Arabia ships roughly 230,000 barrels of diesel through the Suez Canal from refineries near Yemen^[4]. Diesel has already surged 40+ cents a barrel in recent weeks^[4]. Further widening of diesel cracks would signal the supply shock is propagating into refined products, which is when energy inflation starts feeding back into broader CPI expectations.

6. Tech earnings reaction: Alphabet and Tesla report this week. If guidance from mega-cap tech acknowledges margin pressure from energy and tariff costs, the rotation from growth to energy accelerates. If tech earnings beat and push risk appetite back, the oil-driven rotation may pause — but the underlying chokepoint risk remains.