Hodeidah attacks latest blow to Yemen's war-ravaged oil sector

A revival of Yemen's war-torn energy industry looked further out of reach July 22 as work continued to contain the damage from Israeli air strikes on the country's Red Sea port of Hodeidah.

The strikes on July 20 exacerbate current tensions in the region and could disrupt efforts to end the Israel-Hamas war, the Saudi Press Agency reported July 22, quoting Jassim al-Budaiwi, secretary general of the Gulf Cooperation Council. Continued military operations threaten regional and international security and stability, he said.

The attacks along with any potential response by Yemen's Iran-backed Houthi militants risk fueling Middle East tensions, UN Secretary General António Guterres said in a July 21 statement. The Israeli strikes hit electricity infrastructure and a refinery, creating a large fire, the UN said in the statement. The port, which is under Houthi control, has also been used for humanitarian aid to the country.

The attacks came a day after a drone launched by the Houthis hit Tel Aviv, Israel's biggest city.

"The footage released of the strikes indicate that there has been significant damage to the hydrocarbon refining and storage facilities at Hodeidah port, as well as a power station, and cargo-handling cranes, reportedly killing six and wounding some 80 others," said Jack Kennedy, head of MENA country risk at S&P Global Market Intelligence.

Calls to the Hodeidah port, maritime officials and the Red Sea Ports Corp. were not being answered.

Yemen's power ministry, the governor of Hodeidah, the vice president of Red Sea Ports and the general manager of an oil company in the area were all working to contain the damage, according to official news agency Saba.

"The strike will likely disrupt trade and humanitarian assistance operations," Kennedy added. "The Israeli attack is however very unlikely to deter attempts by the Houthis to continue targeting Israel, which will probably increase, if not continue at their current irregular frequency."

Sustained Middle East tensions have contributed to a strengthening oil price in 2024. Platts, part of S&P Global Commodity Insights, last assessed Dated Brent at $85.28/b on July 19, up almost $12/b since December.

Oil production

Yemen is sitting on 3 billion barrels of crude and 17 Tcf of natural gas, according to the US Energy Information Administration, but has seen production plummet from heights of 300,000-400,000 b/d in 2011, as the civil war caused investment in maturing oil fields to cease.

The country currently produces about 7,000-10,000 b/d of light, sweet crude from its Masila, Marib and Shabwa basins, most of it by state-owned companies Yemen General Corp. for Oil, Gas and Mineral Resources and PetroMasila. All the oil is refined locally, following Houthi strikes on the Bir Ali and Ash Shihr export terminals in 2022. The Yemen LNG project, which promises to overhaul the oil and gas sector, has for years been mothballed by TotalEnergies, the major shareholder with 39.6%, pending a political resolution in the country.

While much of the oil and gas infrastructure sits outside of Houthi-controlled areas, Yemen's key crude oil pipeline runs through their territory to the Ras Isa terminal near Hodeidah. It was not clear if the pipeline was affected.

Austria's OMV, which has attempted to sell its Yemen assets, produces around 2,000 b/d in the country, while Canada's Calvalley is producing some 3,000 b/d of crude, according to its website. Neither companies responded to requests for comment on the Israeli strikes.

The UAE's Port of Fujairah has been the largest supplier of refined products to Hodeidah since 2018, according to S&P Global Commodities at Sea. Imports averaged 7,600 b/d in June -- all of it gasoil/diesel -- compared with 68,600 b/d at the peak in 2022, with the UAE's Jebel Ali the sole supplier.

Saudi Arabia, Russia and India have also been product suppliers to the port. Other products imported include gasoline and naphtha. The port has also been used for humanitarian aid imports, and Israeli officials have said it is also an entry point for Iranian weapons.

The Houthis currently control Yemen's capital Sanaa and most of the north after civil war broke out in the Arabian Peninsula's poorest country nine years ago.

The Houthi fighters have used areas around Hodeidah to shoot missiles at commercial ships sailing in the Red Sea and Gulf of Aden to protest the Israel-Hamas war.

Neighboring oil giant Saudi Arabia intervened in 2015 to fight the Houthis and warned July 21 that it would not allow any entity to violate its airspace. Prior to the Israel-Hamas war, the kingdom was attempting to negotiate a peace settlement with the Houthis.

The US, which has led a maritime coalition aimed at defending Red Sea shipping from Houthi attacks, said it was not involved in the airstrike.