Hormuz and Bab el-Mandeb: oil may not be the real problem

The market is still reading the Middle East conflict as an oil crisis. How many barrels are missing, how far Brent can rise, how long until Hormuz reopens. I think we are looking at the problem the wrong way. The real risk is not only in the oil that can no longer leave the Gulf, but in the fact that the two main routes for moving it are deteriorating at the same time. Hormuz blocks the front door. The Houthis are threatening the emergency exit.

Ever since this conflict began there has been one question repeated constantly: how much oil is no longer leaving through the Strait of Hormuz? The question makes sense, of course it does. The problem is that it may no longer be the most important one.

Before the conflict, somewhere between 130 and 140 ships crossed Hormuz every day. On Monday, six went through. On Saturday, three; on Sunday, two. And we are not talking about six enormous tankers carrying crude at full capacity. No very large crude carriers were detected, nor any liquefied natural gas carriers. So let us set aside for a moment the diplomatic statements, the Iranian threats, the communiqués from Washington and the supposed negotiations. Ships do not lie, and the ships have practically stopped sailing.

The problem is not only how many ships pass. It is who has decided to stop sailing.

Iran maintains that the strait will remain closed until the United States complies with the conditions of the provisional agreement reached in June. Trump has said today that no negotiations are planned. Two red lines facing each other, and neither side in any hurry to rub theirs out.

But Hormuz has an additional problem. It is not a road where, if there is a jam, you can look for another exit on a map. Before the war, roughly a fifth of the world’s oil and liquefied natural gas passed through that narrow maritime corridor. To get a sense of the scale: in the last quarter of 2025 around 21.6 million barrels a day crossed the strait. In the second quarter of this year the figure had fallen to 4.9 million. You do not need a degree from Harvard to understand that something like that is extraordinary. But this is where the real problem begins.

The real risk appears if Hormuz and Bab el-Mandeb are degraded at the same time.

Saudi Arabia and the United Arab Emirates have spent years preparing for a possible closure of Hormuz. The Saudis can send part of their production through pipelines to Yanbu, on the Red Sea. The Emirates have an outlet towards Fujairah, outside the Gulf. That was the redundancy built into the system. If someone closed one door, another one existed. The catch is that the alternative Saudi door ends precisely in the next conflict.

When you block the main exit and threaten the alternative, you no longer have an oil crisis. You have a global logistics problem.

The crude that Saudi Arabia carries to Yanbu and wants to send to Asia has to go down through the Red Sea and cross Bab el-Mandeb. And there the Houthis are waiting. Since July they have stepped up their threats against ships connected to Saudi Arabia, and as a result many shipowners are avoiding the area. On Monday, 19 ships passed through Bab el-Mandeb against an average of 26 over the previous ten days. At first sight that does not look like a spectacular fall. But once again we are reading the figure wrongly.

It is not only how many ships pass, it is who has decided to stop sailing. The large Chinese companies COSCO Shipping Energy Transportation and China Merchants Energy Shipping have been avoiding both Hormuz and Bab el-Mandeb since the end of July and are resorting to ship-to-ship operations outside Asia. Between them, those two companies handled roughly half of Chinese oil imports from the Middle East.

The Chinese may be many things, but they are not fools. If they are willing to accept more days at sea, additional operations and higher costs in order to avoid both straits, perhaps we should pay rather more attention to what they do and rather less to government press conferences.

The result is starting to look absurd from a logistical point of view. Imagine Saudi crude that cannot leave through Hormuz. It travels by pipeline to Yanbu. From there it should head down the Red Sea to cross Bab el-Mandeb and on to Asia. But Bab el-Mandeb is dangerous too. So what do we do? We go up towards Suez, use the pipeline across Egypt, come out into the Mediterranean, turn around and end up going down around the Cape of Good Hope to come back up afterwards. A lovely sightseeing tour for an oil tanker. A voyage that might have taken 19 days can turn into something close to 48.

Liquefied natural gas could become a bigger problem than oil itself if the crisis is still alive by the European autumn.

And here is one of the things I believe the market is still not pricing properly. The genuinely scarce asset may not turn out to be the oil. It may be the ship.

A tanker that takes 19 days to complete a given route can make many more annual rotations than one that needs 48. We have not destroyed a single vessel. The world fleet still has exactly the same ships. But its effective capacity has fallen. It is as if we had withdrawn more than half of the fleet that moves almost a quarter of the world’s oil without sending a single tanker to the scrapyard.

The effect is already visible. Some freight rates from Oman to China have quadrupled, to roughly 140,000 dollars a day per vessel. And here I want to make a clarification, because I am again seeing some rather curious interpretations. Rising freight rates do not mean that the world economy is extraordinarily strong and that there is enormous demand for transport. No. Rates are rising because ships take longer, because there is less effective capacity available, because insurers are charging war premiums, and because crossing certain areas is beginning to look too much like Russian roulette with a hundred-million-dollar ship.

In fact, some war risk premiums for vessels linked to Saudi ports or to Bab el-Mandeb have reached roughly 3 per cent of the value of ship and cargo. Do the arithmetic.

My concern is not oil at 120 dollars for a few days. It is a structural premium lasting months on energy, transport and insurance.

And there is one more problem I find particularly interesting. Saudi Arabia is carrying out part of its exports from the Red Sea with automatic identification systems switched off, to reduce the chance that the Houthis can identify the ships. Militarily it makes perfect sense. For analysts it is a nightmare.

International organisations, information agencies and investors use precisely those maritime tracking systems to estimate exports, inventories and oil movements. If ships start disappearing electronically, we stop knowing with any precision how much oil is actually leaving. We move from uncertainty about the market to uncertainty about uncertainty itself. And markets love that. Take the irony as read.

A barrel can exist physically and behave economically as if it did not, if it takes 48 days to arrive instead of 19.