The Houthis might have intended to help Iran when they attacked Saudi Arabia last week, but their attack could end up helping the U.S. and Israel instead.
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On September 8, the Houthis attacked Saudi Arabia. They took some islands on the Red Sea coast and blew up a pumping station that the Saudis were using to pipe oil from the Persian Gulf to the Red Sea, so that it could go through the Suez Canal and quickly reach Europe.
Initially the Houthi attack drove up the worldwide price of oil, which had started to come down due to the U.S. defeat of Iran’s attempt to blockade the gulf. The price of oil futures per barrel had fallen from about $102 to $99, but the attack quickly drove it back up to $102, and then to a high of $106.50 on September 15 on the New York Mercantile Exchange. It has since been falling.
Before the attack, the Saudis were attempting to become more independent of the United States. On August 7, they had signed the Mecca Joint Defense Pact with Turkey and Pakistan. But neither of those countries would help them fight the Houthis. In contrast, Israel is helping the Saudis by providing them with intelligence for targeting the Houthis.
Until the Saudi pipeline is repaired, which could take weeks, the Saudis will no longer be able to avoid the Persian Gulf by piping their oil to the Red Sea. They are already switching their oil exports back to the Persian Gulf, where they are dependent upon the U.S. to keep the Strait of Hormuz open. The U.S. wants them to join the Abraham Accords and recognize Israel, but they have been reluctant to do so.
Reuters continues to pretend that there are few oil tankers transiting through Hormuz. They do so by relying upon AIS (Automatic Identification System) data. But tankers turn off their AIS while they transit the Strait so that the Iranians can’t easily target them.
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In reality, the oil flow through Hormuz has increased so much that oil tankers can be seen by satellite proceeding not just at night, but also by day. Huge tankers are going back and forth under U.S. protection. Once through Hormuz, they often transfer their oil and natural gas to those tankers that aren’t willing to risk the Strait.
The Europeans are temporarily taking a hit. Saudi oil will now have to travel all the way around Africa to get to Europe. The price of oil could skyrocket in Europe. The western European governments might even acquiesce to a peace agreement between Ukraine and Russia so that they can quickly get Russian oil.
In short, before the Houthi attack, the Saudis were trying to steer a more independent course, but the Houthi attack is driving them back into the U.S. camp. It is possible that the Houthi attack might even help President Trump negotiate peace between Ukraine and Russia.
Meanwhile, the exports of Saudi oil will continue, but through the Persian Gulf instead of the Red Sea. Those shipments will probably drive down the price of oil.
Howard Richman co-authored the 2014 book Balanced Trade, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.
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