The Second Chokepoint

WTI is up 75 percent YTD, driven by the Hormuz escalation premium we have been tracking since Jan 1. What changed this week is structural, not incremental.

The Houthis have entered the war in a manner that directly threatens Bab El-Mandeb, and this is a qualitatively different risk from Hormuz. Hormuz is a production chokepoint. It throttles oil at the source. Bab El-Mandeb is a distribution chokepoint, and in the current configuration it is more insidious, because Saudi Arabia's entire contingency strategy runs straight through it.

The E-W pipeline is running at full capacity of 7 mmbpd, with 5 mmbpd rerouted to Yanbu to bypass Hormuz. That was our identified relief valve. Yanbu now sits within Houthi missile range. A formal closure of Bab El-Mandeb is not required. The Red Sea proved this from 2023, where traffic fell more than half on threat alone. The relief valve gets neutralised either way.

Direct incremental cost of a Bab El-Mandeb disruption is USD 5.50 per bbl in freight, USD 5 in insurance, and USD 5 to 10 in geopolitical premium. Total escalation of USD 15 to 20 per bbl, stacked on Hormuz. Our Brent ceiling moves from USD 108 to USD 123 to 128. We do not believe the market has priced the compound probability of both being simultaneously live. Neither chokepoint requires formal closure to sustain elevated prices. Deterrence is the mechanism. That makes this a slower-burning, structurally tighter market and considerably harder to exit than a clean supply shock with a single diplomatic resolution path.

For the JSE we continue to prefer gold, energy names and rand hedges. We are tracking two independent resolution variables that do not move on the same timeline and our exit discipline needs to reflect that. Rand fuel import costs remain the near-term transmission mechanism feeding directly into CPI and the rate path.