BMI Flags Heightened Hormuz Risk as Iran Orders Houthis to Prepare Red Sea Strikes

BMI Flags Heightened Hormuz Risk as Iran Orders Houthis to Prepare Red Sea Strikes BMI warns Q3 oil prices face unusual uncertainty as Iran instructs Houthi forces to target Red Sea shipping, threatening a second simultaneous chokepoint. Iran has instructed Yemen's Houthi movement to stand ready to close the Bab el-Mandeb strait if the United States strikes Iranian power infrastructure, three sources told Reuters on Wednesday (2026-07-16), adding a new pressure point to markets already navigating a partial Hormuz closure.^6,5 Analysts at BMI, a Fitch Group unit, warned on Wednesday (2026-07-15) that the outlook for oil prices in the third quarter of 2026 is now highly uncertain. Their concern is not just the familiar Hormuz risk but the compounding effect: from a fundamental standpoint, the market is more exposed to disruption than it was when the conflict began in February, with fuel inventories running seasonally low and peak summer demand approaching.⁴ ICE Brent crude front-month stood at $84.86 per barrel as of early Friday (2026-07-17), down sharply from the $105.83 reached in late May (2026-05-21) as the acute phase of Hormuz disruption fears eased. WTI front-month was at $79.75 per barrel. The gap between those crisis highs and current prices reflects some reduction in perceived risk — but BMI's analysts argue that gap may have opened too wide.¹ The arithmetic at Bab el-Mandeb makes the Houthi threat worth taking seriously. The strait accommodates roughly 7% of the world's energy trade, according to data in the source material. Saudi Arabia faces disproportionate exposure: around 70% of its energy exports now flow through the Red Sea port of Yanbu, and Saudi crude shipments through that terminal averaged above 4 million barrels per day since June — a fourfold increase from the 973,000 barrels per day recorded during the same period in 2025 — surging further to 4.7 million barrels per day after the truce ended on July 13 (2026-07-13).⁵ That diversion itself explains Yanbu's new centrality. With the Strait of Hormuz under a US blockade — through which nearly 20% of global oil supply transited before the conflict — Saudi Arabia has rerouted exports westward through the Red Sea to reach Atlantic Basin buyers. Closing Bab el-Mandeb would squeeze that alternative artery at precisely the moment when Riyadh depends on it most.^2,5 U.S. Central Command restarted its blockade of all Iranian shipping and ports on Tuesday (2026-07-14), ending the ceasefire arrangement that had briefly steadied markets, according to Foreign Policy. That sequence — truce, then re-escalation — is what has sharpened BMI's Q3 uncertainty call. The analysts noted that the United States will find it harder to manage market expectations around a short, contained engagement a second time, given that the first round exhausted considerable credibility.^3,4 Crude implied volatility tells that story quantitatively. Since the conflict began in late February, implied volatility on Brent crude averaged 78%, based on CME futures and options data, with a single-day reading of 106% on March 12 (2026-03-12). Before the conflict, implied volatility had generally stayed below 30% since the start of 2024. The numbers suggest a market that has been periodically destabilised rather than one that has found equilibrium.² A Houthi-affiliated source confirmed to Reuters that the group has positioned stockpiles of drones and advanced missiles across Yemen's strategic highlands overlooking Hodeidah and the Gulf of Aden. That represents operational preparation, not just political signalling.⁵ A source close to the Houthi movement told Reuters the positioning is real, not theatrical. The bullish case BMI outlines is that price action over the next few days will test whether markets can price simultaneous multi-strait disruption — a scenario that has not been encountered since the current conflict began.^4,5 Not every analyst reads the setup as straightforwardly bullish. Contrarian positioning on ICE Brent crude front-month has turned bearish, with supply-side factors cited — possibly reflecting the view that Saudi production volumes already routed through Yanbu represent supply that has already reached market, limiting the immediate physical impact of any Red Sea action. That logic holds until Houthi interdiction actually forces tankers to reroute around the Cape of Good Hope, adding weeks and cost to Saudi cargoes. BMI's analysts note the seasonal timing compounds the risk. Fuel inventories are at seasonal lows, and the market is moving into the period of highest summer demand — limiting the buffer available to absorb a second chokepoint disruption. Whether Washington strikes Iranian power infrastructure in the near term will determine how quickly that contingency is tested.⁴