In the last few days, the situation in the Middle East has further deteriorated, with three main developments. On the one hand, the Houthis have taken control of Mokha and several islands commanding the Bab el-Mandeb. This means that, also the second strait of the Arabian peninsula has been closed and fallen in the hands of allies of Iran.
As Houthi forces advanced on Mokha and Saudi-backed units retreated, the leader of the Kingdon of Saudi Arabia, Mohammed bin Salman, telephoned Trump twice – on 10th September – requesting American strikes; he was refused both times, while being offered intelligence and targeting data instead, with roughly 200 US personnel already in the kingdom in non-combat roles. Washington’s stated reasoning was that Trump wanted forces concentrated on Iran and Hormuz rather than a second front.
US officials subsequently met Houthi representatives at the embassy in Muscat, where the group reaffirmed the 2025 ceasefire. Also Washington’s position rests on the 2025 ceasefire that ended Operation Rough Rider: the Houthis have told US officials in Muscat that they will not attack American, Israeli or commercial shipping, only Saudi vessels.
The second front involves Iraq. The 11 September drone strike that shut the East-West pipeline originated in Maysan province; Baghdad confirmed as much, opened an investigation and closed the border, while Trump blamed Iran-backed proxies and Tehran categorically denied involvement. Riyadh has lost roughly 4.5 million barrels a day of Red Sea export capacity and has promised “all necessary operational measures”. Thus the kingdom faces a choice between absorbing a strike it cannot answer and retaliating inside a third country — which would open a fourth theatre and place Iraqi government forces, American advisers and Iranian-aligned militias in the same target set. Neither option is stabilising.
The third front is the Saudi–Houthi war itself, which has already resumed at intensity: more than 300 dead in days of fighting near the Red Sea coast, Saudi airstrikes on Yemeni territory including a prison at Al-Hazm, 125,000 displaced, and Houthi forces now roughly 32 kilometres from Djibouti, which hosts American and other bases. Escalation here does not require a decision by any capital; it requires only that existing offensives continue.
The macroeconomic and financial implications are huge. Hormuz transits are running near half their normal rate; the East-West bypass is offline for an estimated three to five weeks; the US Strategic Petroleum Reserve stands near 285 million barrels, its lowest since 1982, foreclosing the coordinated release used in 2022. Brent, having spiked to $107.63 on 10 September and settled at $104.82 on the 18th, sits on a floor supported by physical constraint rather than sentiment — which is why Goldman calls $120 plausible and Citi assigns a 30% probability to $150.
The Federal Reserve raised rates on 16 September, its first hike since 2023, into an energy-driven inflation impulse; there is consequently no monetary cushion available should supply deteriorate further. The ECB and BoJ have already been increasing rates for the last few months, and may continue to do so in the future. The Bank of England my join this sorry party in November. Inevitably, this has led to weakness in equity prices, including those related to technology, as data centres for AI run on energy, and in particular oil.
