Full transcript
0:00Saudi Arabia has a problem. For months,
0:02the Strait of Hormuz, the main exit for
0:04Gulf oil, has been severely disrupted.
0:06So, Riyadh increasingly relied on its
0:08backup route, pump crude across Saudi
0:10Arabia through the East-West pipeline,
0:12load it at Yanbu at the Red Sea, and
0:14bypass Hormuz. Then, within days, two
0:17things happened. The Saudi Arabia's
0:19East-West pipeline was attacked and shut
0:20down. And Houthi forces reached Mayu
0:23Island, sitting right inside another
0:25critical choke point, Bab-el-Mandeb, the
0:27Gate of Tears. Suddenly, Saudi Arabia's
0:29escape route had a problem of its own.
0:31So, why does Bab-el-Mandeb matter? Look
0:33at the map. The Red Sea narrows between
0:35Yemen and Djibouti and Eritrea. Right in
0:38the middle sits Mayu Island, dividing
0:40the passage into two channels. This is a
0:42southern gateway connecting the Indian
0:44Ocean to the Red Sea and the Suez Canal.
0:46All tankers, container ships, and cargo
0:48traveling between Asia and Europe depend
0:51heavily on it. And we have already seen
0:53what happens when this route becomes
0:55dangerous. After the Gaza War began, the
0:57Houthis started attacking commercial
0:59vessels in the Red Sea in the late 2023.
1:01Major shipping companies began avoiding
1:03Bab-el-Mandeb and sailing around
1:05Africa's Cape of Good Hope instead.
1:07Ships still reach Europe, but journeys
1:09became longer and more expensive. Egypt
1:12was hit particularly hard. As Suez
1:14traffic collapsed, Egypt said that its
1:16canal revenues fell by more than 60% in
1:182024, costing it roughly $7 billion.
1:22That's the key point. Bab-el-Mandeb
1:24doesn't have to physically close.
1:26Shipping companies only have to believe
1:27that it is too dangerous to use. Now,
1:29Saudi Arabia faces exactly that risk.
1:32Normally, huge vessels of Gulf oil leave
1:34through the Strait of Hormuz. Saudi
1:36Arabia's alternative is its 1,200 km
1:38East-West pipeline carrying crude across
1:41the kingdom to Yanbu on the Red Sea. In
1:43simple terms, Hormuz blocked, send the
1:45oil west. But in recent months, the
1:47pipeline had been carrying roughly 4 to
1:495 million barrels per day. Then, drones
1:51launched from Iraqi territory struck the
1:53pipeline, forcing Saudi Arabia to to
1:55down it while assembling the damage. At
1:57almost the same time, Houthi forces
1:59advanced to Mayu Island inside Bab
2:01el-Mandeb. Houthi military spokesperson
2:02Yahya Saree then said international
2:04shipping remains safe except for Saudi
2:06vessels. And that's Saudi Arabia's
2:09dilemma. It's route around one choke
2:11point is now exposed to another. And
2:13markets are already feeling the
2:14pressure. Saudi Arabia has started
2:16cutting some oil shipments to Europe.
2:18Saudi Aramco has reportedly told some
2:20customers that September loading cargoes
2:22will be cancelled while loadings at
2:24Yanbu have been suspended. Poland's
2:26Orlen, which gets roughly 40% of its
2:28crude from Saudi Arabia, has been
2:30looking for replacement barrels. Brent
2:32futures have been trading at around 108
2:34a barrel with some physical European
2:36cargoes above 120. So, this isn't just a
2:39military story anymore. It's a global
2:41supply chain story. If insurers consider
2:43Bab el-Mandeb too risky, ships could
2:45once again divert through Africa. That
2:47means higher freight costs, higher
2:49insurance costs, and longer delivery
2:51times while Hormuz is already under
2:53severe pressure. So, what happens next
2:55depends on two things primarily. How
2:57quickly Saudi Arabia can repair the
2:59East-West pipeline and whether shipping
3:01companies continue believing that the
3:02Red Sea is safe. Because repairing the
3:04pipeline is one thing. Removing the
3:07geopolitical risk sitting at the [music]
3:08end is another. And for India, there are
3:11two major consequences. First, oil.
3:14India imports most of the crude it
3:16consumes. So, a global oil price spike
3:18directly increases its import bill.
3:20Second, trade with Europe. The Red Sea
3:22Suez route is one of the shortest
3:23maritime links between India and
3:25European markets. If ships again divert
3:27through Africa, goods will still move
3:30but more slowly and at a greater cost.
3:32And that's the bigger lesson from the
3:33gate of tears. Bab el-Mandeb doesn't
3:35have to completely shut down to hurt the
3:37global economy. The world only has to
3:39believe that it just might.