Hormuz and Bab el Mandeb Crisis Threatens Global Energy Supplies
The global energy crisis has entered a more dangerous phase as disruptions now threaten several major routes used to move oil and gas from the Middle East to world markets. The Strait of Hormuz is already severely disrupted, while Yemen’s Houthi forces have advanced along the Red Sea coast and taken control of Perim Island in the Bab el-Mandeb Strait. At the same time, Saudi Arabia has temporarily shut its strategic East-West oil pipeline after attacks on the infrastructure. Together, these developments are putting pressure on alternative routes that normally help keep Gulf oil flowing to international markets.
The significance of Bab el-Mandeb goes well beyond Yemen. The narrow strait connects the Gulf of Aden with the Red Sea and provides a critical maritime link between the Indian Ocean, the Suez Canal and European markets. Houthi forces have recently captured Perim Island, which sits at the heart of the strait, as well as areas of Yemen’s Red Sea coast. These advances give the group greater ability to threaten shipping through one of the world’s most important trade corridors.
The situation is particularly serious because Bab el-Mandeb has become more important as an alternative to the Strait of Hormuz. Saudi Arabia has increasingly relied on its Red Sea route to move crude from its eastern oil fields to the port of Yanbu, allowing some oil to reach global markets without passing through Hormuz. The loss or severe disruption of this alternative route leaves fewer options for exporters and increases the vulnerability of global energy supplies.
The shutdown of Saudi Arabia’s East-West pipeline adds another layer to the problem. The roughly 1,200-kilometer pipeline carries crude from Saudi Arabia’s eastern oil fields to Yanbu on the Red Sea. It has been particularly important during the disruption of the Strait of Hormuz because it provides a way to bypass the Gulf shipping route. Saudi authorities shut the pipeline as a precaution after attacks on infrastructure in the Riyadh and Madinah regions. Current reports indicate that the attacks came from Iraq, and there is no confirmed evidence that the Houthis carried out the pipeline attack.
The pipeline’s closure does not remove 35% of the world’s oil supply, as has been suggested in some discussions. Its capacity is measured in several million barrels a day and represents roughly 4 to 5% of global oil flows. Its importance, however, is much greater than that percentage suggests because it is one of the few major routes available for Saudi crude to bypass the Strait of Hormuz. Losing such an alternative at a time of wider regional disruption can have an outsized effect on market confidence and prices.
The immediate effect of these disruptions is likely to be seen in oil prices, but the economic consequences do not stop there. Oil is a basic input into transportation, manufacturing, chemicals and many other industries. When crude prices rise, gasoline, diesel, aviation fuel and other petroleum products generally become more expensive. That increases the cost of moving goods and people across the economy.
Agriculture is particularly exposed to higher energy prices. Natural gas is an important feedstock for producing nitrogen fertilizers such as ammonia and urea. Higher gas prices can therefore raise fertilizer production costs. Farmers may then face higher expenses for fertilizer, fuel, irrigation and machinery. Those costs eventually feed into the prices of agricultural products.
Transportation adds another layer of pressure. Food, construction materials, industrial goods and consumer products all have to be moved from farms and factories to markets. Higher diesel prices increase the cost of operating trucks, ships and other forms of transport. Longer shipping routes can make the problem worse because vessels may have to avoid dangerous waters or travel around Africa’s Cape of Good Hope instead of using the Red Sea and Suez Canal.
Manufacturing also depends heavily on the energy and petrochemical industries. Oil and gas are used directly as fuels and indirectly as raw materials for producing plastics, synthetic fibers, solvents, paints, packaging materials and other chemicals. Polyester and nylon, for example, are closely linked to petrochemical production. When energy and chemical input costs rise, manufacturers face pressure on their margins and may pass part of those costs to consumers.
The construction industry can face similar pressures. Petroleum and natural gas are connected to the production of numerous chemicals and industrial materials used in construction. Higher fuel costs also increase the expense of transporting cement, steel, machinery and other materials. As a result, an energy shock can raise construction costs even when there has been no major change in the price of the underlying property.
The effects can eventually reach pharmaceuticals, cosmetics and other consumer products. These industries depend on energy, chemical inputs, packaging and transportation at different stages of their supply chains. A prolonged increase in energy costs can therefore raise production and distribution expenses even when oil itself is not a direct ingredient in the finished product.
This is why an energy crisis can become an inflation problem. Higher fuel prices raise transport costs. Higher gas prices can increase fertilizer and industrial costs. Higher petrochemical prices can increase the cost of plastics, packaging and synthetic materials. These pressures can move through supply chains and eventually reduce household purchasing power.
The consequences could be particularly serious for energy-importing economies such as Pakistan. A sustained rise in international oil and gas prices would increase the country’s import bill and put pressure on transportation, electricity generation, manufacturing and household budgets. Higher global energy costs can also make it more difficult to control inflation and protect foreign exchange reserves.
The present crisis also exposes a deeper weakness in the global energy system. The world does not depend on a single route, but a surprisingly small number of strategic chokepoints handle a large share of global energy trade. The Strait of Hormuz, Bab el-Mandeb and the Suez Canal are connected parts of the same broader supply chain. Disruption at one point can be partly managed by alternative routes. Disruption at several points simultaneously is much harder to absorb.
For companies, the lesson is equally important. Businesses that depend heavily on imported fuel, long-distance shipping or petrochemical inputs may need to reassess their supply chains and energy exposure. Higher inventories, alternative suppliers, more efficient transport and greater use of domestic or renewable energy can reduce some of the risks, although none can completely eliminate the impact of a major global energy shock.
For Pakistan, the strategic response should go beyond managing the immediate rise in fuel prices. Greater investment in renewable energy, energy efficiency, local production, better public transport and diversification of energy sources can reduce exposure to external shocks. These measures will not isolate the country from global markets, but they can reduce the speed and intensity with which international crises reach Pakistani households and businesses.
The developments around Hormuz and Bab el-Mandeb show that the real danger is not simply a higher price at the petrol pump. The greater risk is a chain reaction across transportation, agriculture, manufacturing, food and household spending. When several alternative energy routes are threatened at the same time, the ability of global markets to absorb a disruption becomes weaker. For energy-importing countries, strengthening energy security is therefore not only a matter of national strategy. It is also essential for controlling inflation, protecting businesses and preserving household purchasing power.
