OilPrice.com predicted at the start of the U.S.'s 'Operation Epic Fury' that Iran would move through three distinct courses of action as it worked through the conflict's escalation gears. The first — most obviously, although apparently not to President Donald Trump's team — was to close the Strait of Hormuz, the narrow passage between Iran and Oman, to send oil, liquefied natural gas (LNG) and refined product prices soaring. That step has been taken. The second was to launch attacks on Saudi Arabian oil infrastructure via the Tehran-backed Yemeni Houthis, further inflating energy prices and undermining the idea that U.S. allies in the Middle East could rely on Washington to protect them from Iran. That step has been taken as well. The third was a blockade of the Bab el-Mandeb Strait — the region's other critical transit route for the world's oil, LNG and refined products — to ramp up the pressure from both higher energy prices and regional insecurity still further. That final element has not yet been fully activated, but it is not far off. So where do Iran and its Houthi protagonists go from here?

Bab el-Mandeb Closure Seen as Imminent

Within the next few days, the Houthis are likely to 'officially' close the Bab el-Mandeb Strait to all 'enemy' shipping, rather than to just the Saudis as has been the case, a very senior energy source who works closely with Iran's Petroleum Ministry exclusively told OilPrice.com over the weekend. "That will mean Iran effectively holds hostage up to 42% of the world's crude oil flows [the Strait of Hormuz roughly 30% of oil, and Bab el-Mandeb about 12%] historically flowed on a historical basis and up to 30% of its LNG flows [Strait of Hormuz roughly 20% and Bab el-Mandeb around 10%], and the figures for refined products are at least as disturbing," he said.

Before the current blockades, the Strait of Hormuz accounted for up to 55 million barrels per day (bpd) of fully refined petroleum products, including diesel, jet fuel and petrochemical feedstocks such as naphtha that had already been cracked at Middle Eastern mega-refineries before entering maritime transit lanes. The Bab el-Mandeb Strait — the key gateway into southern Europe from the Gulf of Aden through the Red Sea and then the Suez Canal — handled up to 2.6 million bpd. The strait, which narrows between Yemen and Djibouti, is the sole maritime passage linking the Red Sea to the Gulf of Aden.

"The soaring prices of many of these refined products -- notably diesel and jet fuel -- are possibly even more serious than for oil and LNG because Europe shut down many of its own ageing refineries over the years, so it relies on importing pre-cracked, finished diesel and jet fuel directly coming from the Middle East through the Bab el-Mandeb Strait," he added.

Island Seizures and a 90% Collapse in Traffic

The Houthis' recent seizure of several key islands in the Red Sea — including the centrally positioned Perim Island, which sits in the mouth of the strait between Yemen and Djibouti — has given the group and Iran far greater leverage over the Red Sea/Suez Canal transit route than they had before. International Monetary Fund (IMF) PortWatch data show that overall shipping through the Bab el-Mandeb Strait has already dropped nearly 90% below normal averages, even without the Houthis declaring a general blockade on it.

"Using the Houthis on the Bab el-Mandeb has been a clever move from Tehran because it stretches already-stretched U.S. forces, and leaves Washington's previous assurances that it would look after its allies in the region looking like hot air," the source highlighted.

Trump Refuses Riyadh's Request for Air Strikes

For many observers — not least the Saudis — a staggering recent development was the news that the United States had not only directly refused to help the country militarily against the latest Houthi, and by extension Iranian, threats, but also that Washington was in direct contact with Houthi leaders. Confirmed to OilPrice.com through Iranian and Washington sources with close knowledge of the matter, just over a week ago Trump refused to authorise U.S. air strikes to halt the Houthi advance along the Red Sea coast when asked to do so by Saudi Arabia's Crown Prince Mohammed bin Salman (MbS) in two separate telephone calls on 10 September. That was the day the Houthis completed their capture of the strategic Red Sea port city of Mokha and were pushing quickly across several coastal targets.

Trump instead sent CENTCOM Commander Admiral Brad Cooper to Riyadh for emergency intelligence-sharing coordination, and he has still not authorised any military assistance for the Saudis. Perhaps the refusal owed something to Trump's legendary long memory when it comes to grudges: MbS had persistently refused to take telephone calls from then-U.S. President Joe Biden in March 2022, when Washington desperately needed help from the Saudis to bring spiralling oil prices down after Russia's invasion of Ukraine. Perhaps it was due to 'assurances' from the Houthis that they would not attack U.S. vessels in the Bab el-Mandeb Strait. Such assurances were reiterated during direct U.S.–Houthi negotiations that took place at the U.S. Embassy in Muscat, Oman, mediated by the Omani government, over the weekend of 12–13 September 2026, with the specific face-to-face session occurring on 13 September.

"Up until then, the Saudis still thought the U.S. had its back," a senior source who works closely with the European Union's (E.U.) security complex exclusively told OilPrice.com last week. "After that, it [Saudi Arabia] knows it's on its own now," he added.

A 14-Nation Coalition — With a Chinese Problem

According to the Iranian source, widening the current military campaign against Saudi Arabia is certainly another of the next steps the Houthis will take, if they get the chance. That may come sooner rather than later, given Saudi plans — discussed again over the weekend — to form a standalone 14-country task force called the Multinational Maritime Defense Coalition (MMDC), which will also include elements of the recently formed Mecca Joint Defence Agreement (MJDA) framework previously analysed by OilPrice.com. The MMDC comprises the MJDA countries (Saudi Arabia, Pakistan and Turkey), plus Egypt, Kuwait, Bahrain, Qatar, Jordan, Yemen (the anti-Houthi Presidential Leadership Council), Djibouti, Somalia, Sudan, Bangladesh and Nigeria.

The inclusion of Djibouti may not be helpful to the Saudis, because Iran's main superpower backer, China, has a vice-like grip over the country due to predatory loans connected to its 'Belt and Road Initiative' (BRI). Following Chinese investment of around US$14 billion in the country — totalling over 70% of Djibouti's debt and making China the country's biggest debtor — Beijing created its first overseas military base there in 2017. Given that Chinese vessels remain largely unaffected, on Iran's orders, by the current blockades on the Strait of Hormuz or the Bab el-Mandeb Strait, Djibouti's involvement in the MMDC appears likely to be part of a balancing act geared toward protecting Chinese economic self-interest rather than a genuine geopolitical desire to undermine Iran's strategic goals. Consequently, anything China does in this 'alliance' is likely to be confined to quietly pressuring Tehran to tell the Houthis to keep the disruptions selective.

From the Horn of Africa to Gwadar

Worse still for Saudi Arabia's plans to quell the Houthi threat, Beijing's highly integrated BRI-related economic and logistics corridor runs all the way from the Horn of Africa to the wider western Indian Ocean — and into another of Riyadh's 'partners' in the MJDA: Pakistan. Djibouti is not just home to a massive Chinese military base; it also acts as the maritime centre for Ethiopia, with Beijing owning the US$4 billion Addis Ababa–Djibouti Railway that is for Ethiopia's exports. To the south of Ethiopia lies Kenya, which China has established as its primary commercial maritime gateway into the African continent through the Mombasa Port Expansion project and the Lamu Deep-Water Port.

Northeast of Djibouti, across the Arabian Sea, sits the crown jewel of China's maritime choke point strategy: Pakistan's Gwadar Port. Gwadar is directly tied to the China-Pakistan Economic Corridor. Officially a commercial deep-water port operated by China Overseas Ports Holding Company, it has in practice been heavily constructed to act as a dual-use facility capable of resupplying, repairing and docking the People's Liberation Army Navy's capital ships.

Moreover, in each of these areas there is also ample opportunity for the Houthis to hook up with fellow like-minded Islamic extremist groups, creating a force multiplier effect across the region. Aside from the Tehrik-e-Taliban Pakistan, which operates widely across that country, the Al-Qaeda-affiliated extremist group Al-Shabaab is based in Somalia, with a very broad reach into Djibouti, Ethiopia, Kenya and Sudan.

A Strategic Pivot Back to Beijing?

Looking at all of these factors, and given the strong relationship that built up between Saudi Arabia and China in the years following the end of the 2014-2016 Oil Price War, the key victory for the Houthis to come may well be a switch back in Riyadh's primary geopolitical alliance — to China, and away from the United States. Developments to watch include whether the Houthis formally declare the Bab el-Mandeb blockade described by the energy source, whether Washington authorises any military assistance for Riyadh, and whether the proposed 14-nation MMDC advances from planning into operations.

By Simon Watkins for OilPrice.com

Source: OilPrice.com