The Next Oil Shock Is Never the Last

The Houthis have seized key areas along the Yemeni Red Sea coast, including the port of Mokha and Perim Island, which control the Bab el-Mandeb Strait. This strategic location puts them in a position to monitor or threaten one of the world's most vital shipping routes. The situation is compounded by the already disrupted Strait of Hormuz, which is heavily reliant on Saudi Arabia's East-West pipeline to transport crude from the Gulf to export terminals in the Red Sea. The pipeline's recent attack further demonstrates the vulnerability of fossil-fuel supply chains.

When the Strait of Hormuz becomes dangerous, oil is redirected across the desert via alternative routes, while the Bab el-Mandeb Strait becomes a target for tankers seeking to avoid the chaos. Each alternative route increases the distance, cost, and defensive requirements needed to maintain energy security. The problem is no longer a single strait or militia, but an entire energy system that requires massive quantities of combustible material to cross unstable borders and narrow waterways daily.

Energy markets treat each disruption as an exceptional event, but a pattern should emerge as Europe has steadily increased its reliance on Russian pipeline gas. When Russian supplies were reduced in 2022, prices skyrocketed, prompting governments to fill storage and construct LNG terminals. The United States then replaced Russia as the primary alternative, but this did not provide autonomy.

Instead, the United States integrated energy purchases into broader trade negotiations, resulting in a pledge by the EU to facilitate $750 billion in US energy purchases over three years. However, this arrangement still leaves Europe vulnerable to geopolitical risks.

The current crisis in the Middle East is not a result of a failure to predict the future; rather, it is a consequence of a long-standing warning for half a century. Previous events, such as the 1973 Arab oil embargo, the Iranian Revolution, the Iran-Iraq War, and the Iraq invasion of Kuwait, all disrupted oil supply and exposed Western dependence on Middle Eastern crude. More recently, attacks on Saudi Arabia's Abqaiq facilities in 2019 temporarily removed around 5% of global oil production.

Despite these challenges, Europe and Asia have some defenses in place, including strategic reserves, redirectable LNG cargoes, and spare capacity from pipelines and alternative ports. However, these measures only alleviate the immediate impact and do not change the underlying model. When reserves are depleted or redirected, competition for finite fuel returns at a higher price.

In fact, the International Energy Agency (IEA) has described the current situation as the largest oil-supply disruption in market history, surpassing even the 1973 crisis.

Reducing the number of essential services dependent on fossil fuels is the rational response to this crisis. Electrification offers a solution by removing the daily delivery of fuel needed for various applications. Electric vehicles, heat pumps, wind turbines, and solar panels continue to function regardless of whether Bab el-Mandeb is open or the Strait of Hormuz is secure.

While renewables do not eliminate geopolitical risks entirely, they do alter their timing and severity. Oil and gas are consumable flows that stop operating when deliveries cease, while minerals are embedded in equipment, and a shortage may delay new equipment but not halt existing installations. Many materials can also be recycled, making mineral shortages less catastrophic than oil shocks.