US designates Houthis as a global terrorist group, but plans big sanctions carveouts

The United States has designated the Houthis as a specially designated global terrorist group due to its ongoing attacks on ships in the Red Sea and Gulf of Aden, but the US is delaying the effective date for 30 days to provide time to develop "unprecedented" carve-outs to allow shipments of fuel, food and medicine.

"The Houthis must be held accountable for their actions, but it should not be at the expense of Yemeni civilians," Antony Blinken, US Secretary of State, said in a Nov. 17 statement. "If the Houthis cease their attacks in the Red Sea and Gulf of Aden, the United States will reevaluate this designation."

The designation will take effect around Feb. 16, giving the US time to work with stakeholders, aid providers and other who help facilitate humanitarian assistance and commercial import of critical commodities in Yemen, senior administration officials said during a Jan. 16 briefing.

In addition to the authorizations for fuel, food and medicine, the Department of Treasury is also publishing licenses authorizing personal remittances, telecommunications and mail, and port and airport operations on which the Yemeni people rely, Blinken said.

The Brent-Dubai Exchange of Futures for Swaps, or EFS, spread -- a key indicator of Brent's premium over the Middle East sour crude market has widened in recent weeks amid rising Red Sea tensions.

The spread was assessed at $1.48/b at the Jan. 16 London close, up 99 cents/b or 202% from its most recent low on Jan. 2, S&P Global Commodity Insights data showed.

The US had previously designated the Houthis as a Foreign Terrorist Organization and a SDGT but lifted the designations in 2021 in recognition of the dire humanitarian situation in Yemen, a senior administration official said during the briefing. The SDGT designation is now needed again because the attacks since November are unacceptable, the official said.

The US is only pursuing the SDGT designation because it will cut off the Houthis from financing and put pressure on them while allowing flexibility to safeguard humanitarian assistance, the official said.

Even if a transaction is not flowing through the US financial system, large banks that operate throughout the world often take US designations into account, said a second senior administration official.

"So, we do think that it will have an impact even if a lot of these transactions that are conducted may be with front companies," the second senior administration official said. "It's a critical piece of the entire puzzle when you're looking to stop financial flows to an entity," the official said.

The designation is unlikely to have a material impact on the oil markets given existing sanctions and the fact that most of the Houthis' counterparts, like Iran, are already engaged in illicit trade, said Rachel Ziemba, adjunct fellow at the Center for a New American Security.

But it may be an indication of the broader US view of the situation, Ziemba said. "To some extent, this designation is a sign that the US might be settling in for a longer conflict and realizing that the Houthis will not be quickly deterred," she said.