Author: Rusudan Mirotadze

 

Introduction

The ongoing conflict between Israel and Hamas has significantly disrupted the security of the energy transit chain in the Middle East. Given the geostrategic importance of the region, these trade challenges have adversely impacted the economic well-being of numerous states. The Bab El-Mandeb Strait, which separates the Horn of Africa from the Arabian Peninsula, serves as a crucial checkpoint for commercial transit to the Suez Canal. The Bab El-Mandeb Strait, which annually facilitates 12% of international maritime oil trade and 8% of liquefied natural gas (LNG) trade, has come under attack by Yemeni Houthi forces. At the same time, the Strait of Hormuz, located between the Islamic Republic of Iran and Oman, is responsible for the transit of 20% of the world’s daily oil consumption, and has faced threats from the Islamic Republic of Iran itself. The instability in the region and the disruption of the global transit system have directly contributed to rising energy prices worldwide. A secure trade transit chain is crucial for the stability of the energy supply and the maintenance of its globally agreed prices.

On November 19, 2023, Houthi forces attacked a merchant ship in the Red Sea, initiating a series of subsequent attacks, and prompting retaliatory intervention by the United States, known as “Operation Prosperity Guardian.” Despite the U.S. military’s efforts, attacks on merchant ships continued. On April 13, 2024, Iran’s military and naval forces detained an Israel-linked Portuguese-flagged ship navigating near the Strait of Hormuz. The regional tension heightened significantly following the attack on the Iranian consulate in Damascus, resulting in the loss of seven officials, including a commander from the Iranian Revolutionary Guard Corps. Amid this escalation, the security of trade in energy resources and oil products in the region has been significantly threatened.

This blog examines the geostrategic significance of the Middle East region in international maritime trade relations, delves into the current consequences of the Israel-Hamas conflict, and anticipates potential future threats to energy and oil trade. Furthermore, it analyzes the responses from both regional and global actors to the emergent challenges, with particular emphasis on the role of the United States of America.

 

Source: Reuters; October 20, 2023 Strait of Hormuz: the world’s most important oil artery

 

Impacts of the Disrupted Energy Resource Transit, and Future Security Threats amidst the Israel-Hamas Conflict

Control over the straits of Bab-el-Mandeb and Hormuz has emerged as a significant strategic lever for dominant states within the Middle East region, especially following the Russian invasion of Ukraine and related changes in Western energy policies. These shifts have been evidenced by a substantial increase in the transit of energy resources from the Middle East to Europe, and from Russia to India. According to 2023 data, approximately 8.8 million barrels of oil products were transported daily through the Bab el-Mandeb Strait. Recognizing the strategic significance of this waterway, the proxy group aligned with the Islamic Republic of Iran in Yemen, known as the Houthis, or “Ansarullah,” initiated a series of attacks on vessels traversing the strait. Their objective was to disrupt the transit of energy resources, thereby precipitating economic repercussions that could potentially pressure Western nations into urging the Israeli government to halt its intervention in the Gaza Strip through a ceasefire agreement. Concurrently, Iran has intensified its control over the Strait of Hormuz, viewing it as a crucial instrument in its pursuit of regional hegemony. Through this strait, the states of the Persian Gulf transport crude oil, oil products, and liquefied natural gas. Saudi Arabia, Iraq, Kuwait, Qatar, the United Arab Emirates, and Iran collectively produce 22.8 million barrels of oil daily, with approximately 20 million barrels entering the international market via the Strait of Hormuz.

The strategic significance of the Bab el-Mandeb and the Strait of Hormuz was evident even before the Israel-Hamas conflict. The reduced involvement of global powers in the Middle East, particularly the United States, and the increased interest of China, contributed to the normalization of relations between Iran and Saudi Arabia. Diplomatic relations between these two regional powers were restored through an agreement signed in March 2023. The agreement encompassed measures to ensure the security of maritime transit chains of both regional and global significance, thereby impacting the economic well-being of the region and the world at large. However, the normalization of relations between Saudi Arabia and Israel has become a pretext for actions against Israel by the Islamic Republic of Iran and Hamas. Consequently, the Middle East region, which was on the path of diplomatic negotiations, finds itself once again engulfed in geopolitical conflict. The Israel-Hamas conflict has underscored the geostrategic importance of the straits to the international community, which Iran-linked Houthis exploited to inflict economic losses through their attacks.

The disruption of commercial shipping during the ongoing conflict has been deemed responsible for the economic challenges being faced by Western nations. Israel-linked vessels carrying cargo from the United States and European nations lost access to the Red Sea trade route in tandem with these attacks. As a result, global transport companies altered their transit routes, bypassing the Red Sea and instead navigating via Africa’s Cape of Good Hope. This change led to increased freight charges and higher oil consumption, which directly contributed to the rising prices of daily energy products in Europe. Simultaneously, as a result of Operation Prosperity Guardian, oil product prices in Western countries rose by 4%. It is noteworthy that states opposed to Israel’s intervention in Gaza received assurances of non-aggression from the Houthis, affording them the opportunity to realize relatively substantial economic gains. Russia and the People’s Republic of China join the ranks of these mentioned states. Despite a policy aimed at supporting the Palestinian people, the delay has left Egypt grappling with economic challenges. The alternative trade route through the Cape of Good Hope deprives Egypt of the tolls it receives from transit ships. Compared to 2023, Egypt’s income has decreased by 40% this year, heightening the risk of inflation in the country.

The escalating tension between Iran and the Western powers has already partially manifested in increased oil prices. Simultaneously, certain states that previously utilized the Strait of Hormuz to export oil products have bolstered their access to the Asian market, indicating that the European economic market is relatively inaccessible to the dominant exporting countries of the Arabian Peninsula. This poses an additional threat because, unlike the Strait of Bab el-Mandeb, the Strait of Hormuz lacks an alternative route through Africa. The Western market, which is heavily reliant on energy resources from the Middle East region, particularly amidst the escalating Russia-Ukraine conflict, is poised to confront a significant challenge: The escalation in prices of energy resources and oil products in the near future.

The Houthi attacks on the Strait of Bab-el-Mandeb, along with the Islamic Republic of Iran’s threats against the Strait of Hormuz, are ingrestrict maritime trade freedom in the region. These actions pose significant challenges for the safe transportation of energy resources, and elevate ecological threats worldwide.

 

Policies and Assessments of Regional and Global Actor Engagement

On February 3 of this year, the United States of America, in collaboration with Great Britain, conducted a series of attacks on military targets controlled by the Houthis in Yemen. As part of Operation Prosperity Guardian, the US military targeted several anti-ship missiles that were obstructing its commercial vessels in the waters of Yemen. Subsequently, the US and Great Britain issued a joint statement affirming that military intervention would persist to stabilize crucial maritime checkpoints essential for international trade. This statement was supported by Australia, Bahrain, Canada, Denmark, the Netherlands, and New Zealand.

Despite these retaliatory actions, Iran’s proxy group in the region continues to attack commercial vessels in solidarity with Palestine. A spokesperson for Ansarullah declared strong opposition to the military forces of the United States and Great Britain in the region. As a consequence, the military operation launched by the United States of America failed to guarantee the security of commercial maritime shipping in the region. Instead, the intervention exacerbated challenges associated with shipping energy resources to Europe. This directly led to an increase in oil product prices in Western countries, while Middle Eastern exporting nations expanded their trade with Eastern countries. Thus, the confrontation with the Houthis has resulted in unintended consequences for the USA, which, along with Europe, now faces an energy resource shortage—especially against the backdrop of the Russia-Ukraine war and the sanctions imposed on Russia. The guarantee of inviolability proved to be advantageous for Russia and the People’s Republic of China. Despite the fact that 95% of China’s trade economy relies directly on maritime transit chains, with the Bab el-Mandeb Strait serving as a crucial checkpoint in China’s Belt and Road Initiative, Official Beijing remains silent throughout the ongoing attacks and threats, abstaining from either military or diplomatic measures. The Chinese People’s Liberation Army Navy has notably refrained from joining the US-initiated task force.

Amid the ongoing attacks, Saudi Arabia is maintaining diplomatic relations with both Iran and the United States. As a key regional supplier of oil products to Europe, it is striving to remain neutral in the conflict. This enables Saudi Arabia to uphold economic and political diplomacy with Washington, while simultaneously pursuing normalization with Iran, as outlined in the agreement initiated by China. The threat of the Strait of Hormuz being blocked poses a significant risk to the foreign economic relations of Iran and the Persian Gulf monarchies, particularly the United Arab Emirates. Despite the potential economic damage, Iran leverages these threats as political tools in its dealings with the West

 

Conclusion

The Yemeni Houthi attack on commercial ships, provoked by the Israel-Hamas war, alongside the Islamic Republic of Iran’s threat to block the Strait of Hormuz, underscores the profound impact of regional destabilization on international trade relations, and the volatility of global energy prices. The aforementioned attacks and maritime trade restrictions have both disrupted global transit chains and driven up the price of energy resources for daily use in Western countries. Concurrently, future threats have emerged, including the Gulf monarchies’ growing demand in the eastern market, which poses a risk of interrupted energy supplies to the West. Furthermore, the current situation undermines the freedom of maritime trade and violates established international legal principles. The retaliatory military actions initiated by the United States of America against the Yemeni Houthis, aimed at securing maritime shipping in the region, ultimately proved ineffective. Indeed, the military operation has instead further complicated the supply of Middle Eastern energy resources to Western states, especially given the evolving energy policy dynamics resulting from the ongoing Russia-Ukraine conflict.