Trading Desk
Hostage Situation in the Red Sea
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Martin Raab
Investment-Stratege
Around 40,000 Houthi fighters are holding a critical point in our energy supply to ransom. The result: sharply increased oil and gas prices. A military response would be possible – but so far, only one country is preparing to act.
It is hard to believe: a few tens of thousands of Houthi fighters in desperately poor Yemen have managed to put the global economy under pressure. Using drones and missiles, they are threatening the strategically important Bab el-Mandeb Strait and they are attacking the Saudi East-West Pipeline. In doing so, the Houthis are targeting a critical point in global energy supply – and the international community has so far struggled to find an effective response.
As always, consumers are footing the bill. Oil and transport costs have risen sharply. SMEs from Aarau to Zermatt are already feeling the price shock – as is international business: airlines are recalculating their costs, chemical companies are grappling with more expensive precursors, and almost everything that needs to be transported is becoming more expensive. Once again, central banks are nervously watching energy prices. There is no simple military solution. Saudi Arabia is nevertheless coming under growing pressure to act and is increasingly seeking support from its partners. The question is how long the international community will stand by and watch while a comparatively small military force puts such pressure on a critical point of global trade.
If a decisive strike succeeds and the geopolitical risk premium disappears, the oil price could fall back towards USD 65. Put Warrants or Mini Futures Short on Brent and WTI would then be the first choice. Airlines and cruise operators could also benefit. Investors expecting a prolonged blockade, by contrast, would be better served by selected oil majors and tanker shipping companies. Italy is showing remarkable resolve: Rome no longer wants to wait for Brussels and is preparing its own naval mission to protect commercial shipping. Brava, Giorgia Meloni! While others are still weighing up their options, Italy is calling for more warships and a more robust presence. For investors, this provides another indication that defence shares, including naval defence remain an investment theme. Deterrence, unfortunately, never goes out of fashion.
