Pipeline shutdown and Houthi push toward Bab Al Mandab tighten squeeze on Saudi oil exports

The routes built to keep Saudi oil moving around Hormuz are now being squeezed from both sides. A drone strike has temporarily taken the East-West pipeline offline, while a Houthi advance along Yemen's Red Sea coast is putting the maritime route toward Bab Al Mandab under greater pressure.

The pipeline is the immediate disruption: Saudi Arabia temporarily shut its East-West oil pipeline on Friday after it was targeted by several drones launched from Iraq, causing injuries and damage that is still being assessed, the Foreign Ministry said on X. US President Donald Trump said Iran was probably responsible, Reuters reports.

Riyadh condemned the strike, but held back from retaliating — after Iraqi Prime Minister Ali Al Zaidi asked for time to prevent further attacks. Baghdad opened an urgent investigation, dismissed the commander of its Maysan province operations, and appointed Major General Ali Abdul Hussein Kadhim in his stead. The Iraqi government has also tasked a committee with identifying those responsible, according to statements from the PM’s media office.

The significance of the shutdown is what it removes from Saudi's export system. The East-West pipeline is the artery that has been carrying crude from Saudi Arabia’s eastern fields to its Red Sea coast, allowing the Kingdom to move oil around the throttled Strait of Hormuz for the past six months. Supply is already stretched. The International Energy Agency put August supply at 6 mn bbl / d, down 2.3 mn bbl / d from July and the lowest level in over 30 years, Reuters reports. The agency also cut its 2026 forecast for Saudi crude by 885k bpd to 7.6 mn bbl / d, citing a slower GCC production recovery. Crude loadings fell 1.1 mn bbl / d in August to 3.5 mn bbl / d.

Riyadh could run out of oil stocks for export within days if its East-West pipeline is not restarted, potentially removing up to 4% of global supply from the market, Saudi oil buyers and traders told Reuters. Yanbu has an estimated storage capacity of about 35 mn barrels, while Egypt’s Ain Sukhna and Sidi Kerir can hold around 18 mn and 20 mn barrels respectively.

What could that mean for Saudi spare capacity? Riyadh may still have significant production capacity underground, but getting another barrel out of the field is only useful if the rest of the system can move it, Wolfgang Lehmacher, former head of supply chain and transport industries at the World Economic Forum, tells EnterpriseAM. “If Riyadh wanted more supply tomorrow, the binding constraints would be Yanbu's loading capacity, ship insurance, and crews prepared to sail there,” he adds.

The same export chain faces pressure at sea: The Houthis expanded their control over Yemen’s Red Sea coast, reaching the strategic islands of Perim and Hanish and the coastal towns of Mocha and Dhubab, Reuters reports, citing four Yemeni government sources. That puts Houthi forces within roughly 50 km of the strait and in a stronger position to target shipping, threatening the same Red Sea route the pipeline feeds. Houthi military spokesperson Yahya Saree said shipping remained safe except for Saudi vessels, which continued the blockade from July.

ICYMI- The Houthis struck Abha, Khamis Mushait, and Jazan with missiles and drones last week, hitting energy facilities and injuring 73 civilians. Saudi-backed forces answered with 54 airstrikes across Yemen’s Al Jawf, Marib, Taiz, Hodeidah, Saada, and Al Bayda provinces.

What are the Houthis actually after? The advance serves a stack of objectives, Ahmed Al Zurqa, a political analyst and executive director of the Yemeni Journalists Syndicate, tells EnterpriseAM. On the ground, the group wants to recover the coastal areas it was driven out of in 2018, which had given it a maritime outlet for smuggling weapons and receiving Iranian expertise. It also wants to defeat the National Resistance Forces under Tareq Saleh, whom Al Zurqa called one of the Houthis’ most significant potential rivals in any future struggle for power. Taking the coast strengthens the group’s hand against the Yemeni government in Taiz and Aden, and in any eventual political settlement.

For Riyadh, the calculation is more direct: The Houthis, Al Zurqa said, want to raise the cost of confrontation for Riyadh and move closer to threatening its Red Sea export corridor through Yanbu. This would give them leverage to push the Kingdom into dropping its support for the Yemeni government and easing the coalition’s air and sea restrictions.

And the geography gives Iran another pressure point: Controlling positions along the strait hands Tehran an additional pressure card against the Trump administration, “especially if pressure at Bab Al Mandab coincides with a continuing crisis at Hormuz.”

How much of this is Iran? Al Zurqa said it’s clear Iran played a central role in planning, training, logistically supporting, and arming the operations, and that the pattern of the attacks carries features familiar from Iran’s Revolutionary Guard and its allied groups. Iranian sources told Reuters that Tehran had pledged additional funding, weapons, and senior officers to the Houthis. Yemeni sources, citing intercepts and captured fighters, said they believed the coastal campaign was directed by Abdolreza Shahlaei, a senior commander in Iran’s Quds Force.

But support does not necessarily mean command. It is essential, Al Zurqa said, to separate Iran’s role in building capability and planning from proof that Tehran ordered each individual attack. What can be said with more confidence, he said, is that “the Houthis have become a core part of Iran’s network of influence and deterrence in the region.” One Reuters source made a similar point from the other side: Tehran met with allies including the Houthis, but the decision to seize Mocha was the group’s own.

What this means for exports, and the economy

The threat works even short of a blockade: “The Houthis don't need to actually close Bab Al Mandab to create an economic impact,” Al Zurqa said. “Continued attacks, or a credible threat to ships and facilities, is enough to raise ins., shipping, and protection costs and affect tanker movement and market confidence.” That is the mechanism already playing out, with a threatened route becoming a more expensive route regardless of whether a single tanker is stopped.

And a prolonged squeeze reaches past oil: If the escalation drags on, Al Zurqa said, “its effects could extend beyond the oil sector to the broader Saudi economy, through higher security and defense spending and a rising regional risk premium, at a time when the Kingdom is allocating enormous resources to its economic transformation projects and Vision 2030.” This is the same fiscal pressure the Kingdom is already managing as it reins in gigaproject spending elsewhere, now with a second claim on the budget.

Higher oil prices only cushion part of that hit: The Kingdom can recover some lost revenue if disruption drives crude prices higher, but the same escalation simultaneously raises freight, war-risk cover, security costs, and borrowing costs. The real fiscal turn comes if lost export volumes last longer than the price spike, Lehmacher argues.

The response, and the risk of going wider

Yemen’s government is now asking Riyadh to help reverse the Houthi gains. It plans to deploy weapons to retake Houthi positions around Mocha and the road to Hodeidah, and has asked Riyadh for more air support and strikes on Houthi targets, including Sanaa and oil depots, two Yemeni officials said. Riyadh has limited its support to logistics, weapons, and intelligence, and the officials said it appeared reluctant to launch a broader campaign for fear of triggering heavier Houthi drone attacks on Saudi soil.

The question is what kind of intervention can actually roll back the advance. Lessons from the previous Yemen war showed that air power can weaken Houthi capabilities but cannot, on its own, retake and hold ground, Al Zurqa said. The more effective route, in his view, would be to arm and unify the Yemeni government forces and back them with air, intelligence, and logistical support to fight on the ground, in parallel with strikes on Houthi missiles, drones, and command-and-control positions.

That leaves a gap between the support Riyadh is providing and what would be needed to retake the coast. Crown Prince Mohammed bin Salman asked Trump for military support against the Houthis, Reuters reports, citing sources familiar with the matter. Washington declined direct military action but offered intelligence-sharing and targeting support. Trump said the Houthis had told his administration they did not want US involvement and were letting most ships pass.

Washington has offered the tools, but not the strikes: Al Zurqa expects Washington to widen intelligence support, air defense, early warning, and protection of facilities and sea lanes if the attacks continue, with any shift to broader offensive involvement depending on the nature and scope of the threat.

The bigger picture: Saudi Arabia can build a pipeline around Hormuz, expand pumping capacity, and shift crude west — but none of that ensures the oil reaches a buyer if the terminal at the other end becomes exposed or ships cannot automatically or safely call there. “Corridors are what states build. Charter parties and hull premiums decide whether the steel carries anything this month. A completed pipeline with uninsurable berths is capital, not capacity,” Lehmacher tells us.