Crude Oil Surges 3% as Strait of Hormuz Fears Spread to Red Sea

Brent crude climbed above $94 and WTI topped $86 on July 22, 2026, as Houthi missile deployments near Bab el-Mandeb threatened to close a second critical energy chokepoint alongside the Strait of Hormuz blockade.

Lead

What Happened

The Joint Maritime Information Center issued a mariner warning on Tuesday morning confirming Houthi missile and drone activity near Bab el-Mandeb, the narrow passage connecting the Red Sea to the Gulf of Aden through which roughly 6.2 million barrels of petroleum transit daily. Four tankers immediately changed course, according to maritime tracking data.

The move follows a July 20 declaration by Houthi leadership of a formal maritime embargo against Saudi Arabia, targeting the Red Sea shipping lanes that Riyadh had used as an alternative export route after the Strait of Hormuz crisis curtailed Persian Gulf throughput. If the Bab el-Mandeb blockade holds, Saudi Arabia — already operating at reduced capacity following a March drone attack on the Ras Tanura refinery — would lose its primary remaining export corridor.

Tuesday's escalation is the eleventh consecutive day of U.S. military strikes against Iranian targets. The broader conflict, which began on February 28 with a joint U.S.-Israeli air campaign against Iranian military and nuclear facilities, has reshaped global energy supply flows more severely than any prior geopolitical disruption since the postwar era.

Market Reaction

Strategic Context

The Strait of Hormuz, a 21-mile-wide passage between Iran and the Oman peninsula, handled approximately 25% of the world's seaborne oil trade before the current conflict. At peak disruption, tanker traffic dropped 70%, with more than 150 vessels anchored outside the strait. Maritime risk monitors placed the Hormuz corridor risk index at 92 out of 100, reflecting near-complete commercial avoidance.

Over 34,000 vessels were diverted from the Hormuz corridor in the first four weeks of the conflict. MSC and Maersk rerouted all container traffic around the Cape of Good Hope, substantially increasing transit times and freight costs across Asian-European supply chains. Crude oil news throughout March and April documented the cascading downstream effects: refinery input shortages in Europe and Asia, product price spikes, and emerging-market currency pressure from surging import bills.

OPEC+ sought to cushion the shock. On July 6, seven member nations — Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman — agreed to increase August output by 548,000 barrels per day, the group's fifth consecutive monthly production hike. The increase was presented as a response to partial Hormuz recovery. Tuesday's Houthi deployment has raised serious questions about whether that recovery can be sustained.

Geopolitical Dimension

The simultaneous threat to Hormuz and Bab el-Mandeb represents the central fear that global energy supply analysts had identified as the catastrophic tail scenario. The two straits together control the principal exits from the Persian Gulf and the Red Sea. Saudi Arabia's pivot to Red Sea exports — itself a workaround after the Hormuz closure — now faces direct interdiction. The Dallas Fed, in a working paper published this month, characterized the 2026 Iran conflict as the largest geopolitical oil supply disruption in recorded history, estimating the dislocation at two to three times the scale of the 1973 oil embargo or the 1990 Gulf War shock.

Persian Gulf crude production remains approximately 10.5 million barrels per day below pre-war levels, with Gulf exports recovering to roughly 6.5 million barrels per day in June — only two-thirds of their pre-conflict volumes. A renewed tightening of either chokepoint would push those figures lower.

The Strait of Hormuz blockade dynamic has also drawn in the Caspian Pipeline Consortium terminal on the Black Sea, which reported attacks in recent weeks, further constricting the alternative supply corridors that consuming nations had sought to expand.

What Comes Next

Goldman Sachs, in a research note published Monday, set a base-case forecast of $80 per barrel for Brent in the fourth quarter of 2026 but flagged a risk scenario exceeding $120 per barrel if Hormuz disruptions persist and Gulf flows remain below 45% of pre-war levels. The bank stated the Hormuz flare-up "may delay recovery in oil supplies" and described energy equities as offering "asymmetric upside" given current geopolitical risk.

The administration's decision to abandon a proposed 20% transit fee on Hormuz-routed cargo — floated earlier this month — removed one diplomatic friction point. However, with the 11th consecutive day of U.S. airstrikes underway and no formal ceasefire negotiations publicly confirmed, the structural supply deficit appears likely to persist well into the second half of 2026.

Outlook

The simultaneous threat to the Strait of Hormuz and Bab el-Mandeb marks the sharpest escalation in the five-month crude oil supply crisis. With Persian Gulf production still far below pre-conflict norms, global energy supply chains have little buffer against further chokepoint disruptions. Oil price today levels near $95 for Brent remain well below Goldman's risk scenario, suggesting markets are still pricing a partial recovery — a bet that Tuesday's events have made considerably less certain.

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