China Reportedly Strikes Deal with Yemen to Keep Oil Flowing

Global oil markets may have found another major geopolitical flashpoint to watch. According to a report by British media, China has reportedly held direct talks with Yemen's Houthi movement to ensure its oil tankers can safely pass through one of the world's busiest shipping lanes. If confirmed, the move could reshape energy supply routes, influence crude oil prices and provide fresh insight into how major economies are responding to growing disruptions in the Middle East.

For forex and commodity traders, geopolitical developments often move markets as much as economic data. This is especially true for crude oil, where disruptions to major shipping routes can quickly affect prices, inflation expectations and currency movements.

A new report suggests China may be taking an unusually direct approach to protecting its energy supply.

According to The Telegraph, citing six sources familiar with the matter, Beijing has held direct discussions with Yemen's Houthi movement to ensure Chinese vessels can safely transit the Bab el-Mandeb Strait, a strategic maritime gateway linking the Red Sea to the Gulf of Aden.

If confirmed, China would become the first country known to have negotiated directly with the Houthis over commercial shipping through the waterway.

Neither China's Ministry of Transport, the Houthi movement nor Iran's Foreign Ministry has publicly commented on the report.

Contents

01

A Strategic Response to Growing Supply Risks

02

Why the Bab el-Mandeb Matters

03

Chinese Tankers Continue Sailing

04

What It Means for Financial Markets

05

A New Dimension to Middle East Risk

A Strategic Response to Growing Supply Risks

The reported talks came after the Houthis announced a maritime blockade against Saudi Arabian ports on 20 July and subsequently attacked two Saudi oil tankers using missiles and drones.

According to the report, Beijing responded by seeking assurances that Chinese oil tankers would be allowed to pass safely through the Bab el-Mandeb Strait. Chinese officials were also said to have verified the movement of individual Chinese vessels transiting the area.

The reported negotiations underline China's growing focus on protecting energy imports as instability spreads across key shipping routes in the Middle East.

Why the Bab el-Mandeb Matters

The Bab el-Mandeb Strait is one of the world's most strategically important maritime chokepoints.

It serves as the southern entrance to the Red Sea, connecting Europe, the Middle East and Asia through the Suez Canal. Any disruption to shipping through the strait has the potential to affect global energy supplies, freight costs and commodity prices.

According to the report, China is particularly focused on maintaining oil exports from Saudi Arabia's Yanbu port on the Red Sea.

These shipments have become increasingly important as supply from the Persian Gulf faces pressure from what the report described as Iran's effective restriction of traffic through the Strait of Hormuz.

Industry estimates suggest that crude shipments travelling from Yanbu through the Bab el-Mandeb take approximately 16 days to reach Asia.

If vessels are forced to avoid the route by sailing north through the Suez Canal before circumnavigating Africa, the journey could extend to around 50 days, significantly increasing transport costs and delivery times.

Chinese Tankers Continue Sailing

The report also cited sources close to the Houthis, who described relations between the group and China as generally positive, with previous coordination linked to Saudi oil exports destined for the Chinese market.

Shipping data from Kpler, the London Stock Exchange Group (LSEG) and MarineTraffic indicates that at least four crude oil tankers have departed Saudi ports for China via the Bab el-Mandeb Strait since the Houthis announced restrictions on Saudi shipping.

However, Chinese trading sources also indicated that some tankers approaching the Red Sea altered their routes because of security concerns.

Meanwhile, vessel tracking data showed that two very large crude carriers (VLCCs), New Champion and New Prime, had exited the Gulf of Aden into international waters.

Industry data suggested that New Champion had been scheduled to load crude oil at Yanbu, while New Prime had already completed loading before departing.

The vessels are operated by Hong Kong-based Associated Maritime, which has not publicly commented on the developments.

What It Means for Financial Markets

For traders, the reported discussions highlight how geopolitical tensions are increasingly influencing global energy markets.

Oil prices have remained highly sensitive to developments in the Middle East this year, with investors closely monitoring both the Strait of Hormuz and the Bab el-Mandeb Strait. Any threat to these shipping routes raises concerns over supply disruptions, which can quickly push crude prices higher.

A sustained increase in oil prices could have broader implications beyond the energy sector. Higher crude prices often contribute to rising inflation, influence central bank policy expectations and strengthen currencies linked to energy exports while weighing on net oil importers.

The developments could also increase volatility across foreign exchange markets. Commodity-linked currencies, including the Canadian dollar and Norwegian krone, often respond positively to rising oil prices, while currencies of major importing economies may face additional pressure if energy costs continue climbing.

A New Dimension to Middle East Risk

Whether the reported discussions are officially confirmed or not, they illustrate how governments are adapting to an increasingly fragmented geopolitical landscape.

Rather than relying solely on diplomatic channels or military protection, countries appear to be exploring direct engagement with regional actors to safeguard critical supply chains.

For investors, this is a reminder that geopolitical developments can rapidly reshape market sentiment. As tensions spread beyond the Strait of Hormuz to include the Red Sea and Bab el-Mandeb, traders in oil, currencies and broader financial markets may need to prepare for heightened volatility in the weeks ahead.