Brace for higher fuel costs as Saudi Arabia loses its last open shipping lane

The squeeze play just closed

The world’s largest oil exporter has effectively run out of clean routes to market. In a lightning offensive over roughly a week, Yemen’s Iran-backed Houthi rebels seized Yemen’s entire Red Sea coast and three strategic islands – Mayyun (Perim), Greater Hanish and Lesser Hanish – completing their takeover of the Bab al-Mandeb Strait, the southern gateway to the Suez Canal.

On the same day, Saudi Arabia shut down its East-West oil pipeline after drone attacks, calling the closure “a precautionary measure.” The Saudi Ministry of Energy confirmed the pipeline in the Riyadh and Medina regions “was subjected to several attacks” and stopped as a precaution.

That pipeline was built in the 1980s as a bypass for the Strait of Hormuz. Hormuz, which used to carry a fifth of global oil, was effectively closed by the Iran-US conflict that began in late February 2026. The Red Sea is now dominated by Houthi forces. The bypass is down. There is no fourth option.

The Houthis made the intent plain: “Maritime navigation is safe for all companies except for Saudi vessels.” As CNN Business put it, without the strait “less oil can exit the region and will need to take much longer routes, fueling inflation by adding delays and costs onto already-elevated shipping.”

Prices are already moving

This is not a hypothetical risk. Brent crude jumped as much as 4% above US$105 a barrel on 11 September on supply-route concern. A day later, average US diesel topped US$6 per gallon for the first time ever as the Houthis completed the takeover.

Back in April 2026, Treasury modelled three scenarios for the conflict. Its severe case put oil at around US$180 a barrel through mid-2026, with Hormuz flows not fully recovering for four to five years. Those numbers were written before the Bab al-Mandeb takeover and before the pipeline was shut. The situation has materially worsened since.

New Zealand is already paying

The pain is visible in the local data. Commerce Commission fuel monitoring published on 7 May 2026 showed that against the 28 February pre-conflict baseline, diesel retail prices were up 76%, from 188 to 264 cents a litre. Regular 91 was up 28% and premium 95 up 27%.

And those figures are from May, before the latest escalation. The refined-product cost formula the Commission tracks includes crude price, quality premium, shipping, insurance and losses. Every one of those inputs is now under fresh upward pressure.

New Zealand imports virtually all its refined fuel from Asian refineries in Singapore, South Korea and Japan, which source crude from the Gulf. With Marsden Point now running as an import terminal rather than a refinery, there is no domestic buffer left to soak up a shock.

Supply, at least, is not the immediate worry. MBIE data as at 29 July 2026 showed 50.6 days’ total cover for petrol and 56.7 for diesel, with the supply chain “operating smoothly.” New Zealand is not about to run out of fuel. It will simply pay more for it.

The freight cost stacks on top

Fuel is only half the invoice. Higher oil prices feed straight into bunker costs, and war-risk insurance premiums for vessels transiting the strait have exploded, compounding freight rates for everyone.

That lands on an export sector already at a structural disadvantage. The day before the offensive completed, Kotahi chief executive Emma Parsons warned that New Zealand’s freight disadvantage is getting “significantly worse” amid a “multiplying number of crises in global shipping.” Kotahi’s data showed shipping a 20-foot container from New Zealand to Shanghai costs 30-40% more than from Melbourne. Every escalation widens that gap.

What happens next

The Houthis have declared “escalation for escalation,” and 1News notes experts describe them as “highly unpredictable.” For New Zealand businesses that means budgeting for higher fuel and freight as the base case, not the risk case. The last clean export route for Gulf oil has closed, and there is no quick reopening on the table. Anyone still pricing transport on February’s numbers is planning for a world that no longer exists.

Sources

• 1News: Saudi Arabia shuts major oil pipeline as Houthis seize island in key strait (2026-09-11)
• RNZ: Yemen’s Houthis take over strait vital to global shipping (2026-09-12)
• RNZ: Houthis advance along Yemeni coast, threaten Saudi oil exports in Red Sea (2026-09-11)
• 1News: Iran-backed Houthis seize island in key strait, opening new front in war (2026-09-12)
• CNN Business: The Bab al-Mandeb Strait, a lifeline for the global economy, is in jeopardy (2026-09-11)
• Commerce Commission: Fuel Price Monitoring – 07 May 2026 (2026-05-07)
• Treasury: Media briefing – Economic Impacts of the Middle East Conflict (2026-04-23)
• BusinessDesk: Shipping and port infrastructure ‘polycrisis’ hurting exporters, Kotahi CEO warns (2026-09-10)