The rapid devolution of the Iran war’s second front presents escalating risks to global energy supplies as Houthi attacks intensify against Saudi Arabian energy infrastructure. In recent days, the Yemen-based fighters have launched deadly attacks on Saudi airports and targeted the Saudi Aramco headquarters in Dhahran, where Saudi Ministry of Energy officials confirmed a fire at an administrative building. The security incident comes on the heels of multiple airport attacks that claimed at least 18 lives and left over 300 injured, part of an ongoing Houthi campaign to impose a no-fly zone on the Kingdom. Over the past month, the Houthis have repeatedly targeted the country’s energy infrastructure, including the East-West Pipeline, though Aramco engineers have executed rapid repairs to prevent a more severe shock to the global energy system.
The critical question facing Washington is whether it can continue to avoid direct participation in this metastasizing conflict. While the U.S. provides intelligence and aerial refueling support, it is not participating in air operations against the Yemen-based fighters. A yearlong ceasefire between the U.S. and the Houthis remains ostensibly in effect, and in late September, Houthi leadership indicated that it would not target U.S. vessels in the Red Sea in an apparent effort to keep Washington on the sidelines. At the time, President Trump said, “the Houthis don’t want to fight us” and that they were letting most ships pass through the critical chokepoint following reports that the U.S. cancelled planned strikes on the group.
Some Pentagon officials are apparently reticent deeper involvement in the Saudi-Houthi conflict given the substantial resources being devoted to the Hormuz oil evacuation and the Iranian campaign, as well as the deepening shortages of U.S. missiles and interceptors. The U.S. escort operation requires a significant outlay of aerial and naval assets operating in close coordination, ranging from Apache helicopters, F-35s, and aerial refueling tankers to guided-missile destroyers and amphibious assault ships. Simultaneously, around 30% of U.S. naval assets in the region are committed to the maritime blockade of Iran.
Whether Iran can continue to publicly maintain its operational distance from Houthi actions remains uncertain. Iranian officials have gone to great lengths to insist that they exercise no command and control over the Houthis, despite clear evidence of weapons and financial support to the Axis of Resistance member and the fact that Tehran is a beneficiary of the widening scope of the conflict. The apparent offer by Iranian officials to help mediate an offramp between the Saudis and the Houthis could be construed as an arsonist helping to put out a fire. The Houthis are purportedly seeking the lifting of the land, sea, and air blockade in place for nearly a decade and a substantial cash settlement — demands that seemingly mirror those made by Tehran to Washington. The recent spate of deadly Houthi attacks could strengthen the hand of the finish-the-job camp in Washington and the region.
“Oil prices are a broken barometer for measuring the geopolitical pressure building in the Middle East, and we would now include rising oil exports as well.” Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets
“Oil prices are a broken barometer for measuring the geopolitical pressure building in the Middle East, and we would now include rising oil exports as well.”
Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets
Physical crude markets have tightened amid supply disruptions and unprecedented freight costs. Platts assessed Dated Brent at around $130.52/bbl on October 13, just off its $135.74 level on October 8, which represented the highest price since the $144.42/bbl peak on April 7th. This stands in contrast to front-month paper prices around $106/bbl at that time of assessment. Despite higher volumes out of the Middle East, crude inventories — both onshore and on water — continue to fall, suggesting a continued shortage of crude. Record tanker rates are hindering the economic viability of key routes; in Europe, this has prevented the placement of grades from West Africa and the Americas, instead supporting certain local grades. Many grades have seen their arbitrage into Asia close entirely. For example, some West Africa traders have recently cited a step back from Indian interest due to the freight headwind.
Facing record diesel prices ahead of the midterms, President Trump has sought to manifest an energy ceasefire in the Russia-Ukraine War, but the proposed deal already shows clear signs of failure. The recent Putin-Trump agreement to facilitate the export of Russian diesel has faced significant criticism in Washington, with easing of Russian sanctions remaining deeply unpopular on both sides of the aisle. Even so, such an agreement would be unlikely to create a meaningful impact to U.S. diesel markets. Global diesel exports in Q3 ran over 900 kb/d lower year-over-year, with Russian volumes down over 400 kb/d over the same period, driving global diesel inventories well below five-year seasonal lows.
The root cause for Russia’s export atrophy remains unresolved despite the easing of the export ban. Damage to Russian refineries has driven refinery runs to roughly 3.4 mb/d in September, down around 1.3 mb/d year-over-year. Current production levels just exceed domestic consumption, meaning that in order to meet the initial volumes outlined—300 kt immediately, 500 kt in November, and a further 1,000 kt after—by end-of-year, runs would need to recover to July levels, an increase of approximately 300 kb/d. Without such an increase in output, given domestic consumption, deal volumes would likely not be produced until mid-2027. In either scenario, the volumes represent a trickle that will have a diluted, delayed impact on markets. Furthermore, even if the volumes are drawn from inventories or runs surprise, the immediate volume would be unlikely to move the needle for pump pricing prior to midterms.
European natural gas prices have reached their highest levels since December 2022 as inventories remain critically low and uncertainty Middle East LNG flows persists. TTF prices have broken above the €85/MWh level, last seen at the end of 2022 when prices began to climb down from highs seen after the Russian invasion of Ukraine. Now, as renewed strikes in Hormuz and regional flareups increase pessimism for a durable ceasefire by year end, Europe faces a stark supply landscape with gas injections below historic levels. At the start of heating season, European storage stands at 74% full, versus 83% last year and well below the five-year average of 89% for this time of year. German gas storage further lags with injections at only 60% full, versus 76% this time last year, prompting the government to direct state-owned SEFE to buy and store an additional 8 TWh of gas by December 15.
Even as Europe seeks to shore up storage, global supply remains suppressed, with September LNG exports down 17% from January’s record highs as Qatar exports remain largely offline. Europe’s supply constraint will tighten even more this winter as the bloc’s ban on long-term Russian LNG contracts goes into effect January 1. In the first nine months of this year, Europe has imported nearly 14 billion cubic meters of Russian gas, namely from Yamal LNG, representing 12% of total LNG imports through September. Even if El Niño brings a milder winter to the continent, without a resumption of LNG flows through the Strait of Hormuz, TTF is set to remain well bid through the winter.
Helima Croft authored "Energy Flashpoints: Contagion Effect," published on October 13, 2026. For more information on the full report, please your RBC representative.
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