Forget the Fed, Iran Just Took Both of Saudi Arabia’s Exits
While Wall Street spent the week parsing every word of Warsh’s press conference, something happened on the other side of the world that will matter longer than a 25 basis point hike.
Between September 10 and September 14, Iran’s proxies took position at both of Saudi Arabia’s routes to market. It happened in pieces, across a dozen wire stories, buried under the Fed and the pipeline headlines. Nobody has put it together in one place. So let me.
Saudi Arabia has two ways to get oil to the world.
The first is the Strait of Hormuz, at the mouth of the Persian Gulf. Iran has not closed it with a blockade. It has done something more effective. Since March it has attacked or threatened any ship it chooses, and it has told the world it will keep doing so.
Eighty vessels have been hit near the strait. Twenty seafarers are dead. Insurers have paid out roughly $2 billion in claims. War-risk cover, which cost a quarter of a percent of a ship’s value before the war, now runs 7.5% to 10%, renewable every seven days, and underwriters are increasingly unwilling to write it at any price. Washington has put up $40 billion in reinsurance guarantees to coax ships through. It has barely moved the needle. Fewer than a dozen ships a day are transiting, against close to a hundred before the war, and most of those are dark-fleet tankers running without coverage.
Put simply, Iran does not need to close Hormuz. It only needs to make it uninsurable. And it has done so via the cheapest weapons it has: mines, drones, and fast attack boats that cost a fraction of the tankers they target. Each hit, each threat, each “we will fire on any vessel” announcement from Tehran gets priced into the next week’s war-risk quote. Eighty attacks later, underwriters have done Iran’s work for it. The strait is open on paper. It is closed on the actuarial tables.
The second route Saudia Arabia has to get oil to market is the Red Sea.
Crude moves 745 miles west by pipeline to the port of Yanbu, loads onto tankers, and sails south through the Bab el-Mandeb Strait into the Indian Ocean. That route has carried more than 5 million barrels a day since the spring. It is the only reason Saudi oil has been reaching Asia at all.
As of this week, Iran’s proxies sit on both ends of that route too.
On September 10 and 11, while everyone was freaking out about bond yields and the upcoming Fed rate hike, drones from Iran-backed militias in Iraq hit the East-West pipeline. Saudi Arabia shut it down. Officials briefed on the damage say repairs will take three to five weeks. While that was happening, the Houthis finished a month-long offensive along Yemen’s Red Sea coast. On September 10 they took the port city of Mokha. On September 11, the same day the pipeline burned, they took Dhubab, the mainland town facing the strait, and Perim Island, which sits in the middle of the Bab el-Mandeb at its narrowest point, 18 miles across. On September 14 they took the Greater and Lesser Hanish islands, the last two positions in the strait not under their control.
To be clear, the Houthis have not closed the Bab el-Mandeb. Ships are still transiting. What the Houthis now have is the same thing Iran has at Hormuz: the ability to hit any ship they choose, from positions on both shores and every island in between, and the track record to make insurers believe it. They declared a blockade of Saudi ports in July and have been attacking Saudi-linked tankers since. The Red Sea premium is already rising. The playbook that emptied Hormuz is now set up at the other exit.
This is what a chokepoint strategy looks like when it works.
Iran cannot beat the United States in a shooting war and has not tried. It has spent six months doing something else: making every route the Gulf uses to get oil to market too dangerous to insure, using proxies that cost almost nothing and give Tehran deniability. Hormuz in March. Saudi Red Sea ports blockaded by the Houthis in July. The pipeline hit by Iraqi militias in September. The strait itself occupied the same week. None of it required an Iranian ship or an Iranian soldier. All of it has been done with drones, missiles, and irregulars.
The results are in the numbers. Saudi Arabia produced under 6 million barrels a day in August, down from 8 million in July and against a target of 10.4 million. That is the largest producer in OPEC operating at roughly half its intended output. Kpler estimates the pipeline outage alone removes 120 million barrels from the market per month. Reuters puts the East-West pipeline at 4% of global supply. Brent averaged $67 before the war. It is above $100 now, and the physical market, as I told you Wednesday, is trading closer to $130.
Now, what happens next.
The Saudi crown prince has told Trump this is the moment for military action against the Houthis. The U.S. military is already helping the Saudis develop targets inside Yemen. A former Pentagon official said this week the Houthis on Perim have put themselves in a “kill box,” an 18-mile strait within range of everything the Navy has. That is probably true. It is also true that the Houthis have absorbed years of American and Saudi strikes and are still standing, and that clearing them from the islands does not reopen a pipeline or make Hormuz insurable.
Trump said last week that he expects the conflict to end after the midterms. Read that as an admission that the administration does not want an escalation in the Red Sea before November. Iran’s proxies read it the same way. They have six weeks of running room, and they are using it.
Which brings me to the part that matters for your money.
Iran did not close a single strait. It made two of them uninsurable, and the result is Saudi Arabia pumping at half its target and physical crude trading at $130. That premium reaches the pump in four to eight weeks. It reaches the CPI a month after that. The Fed hiked into inflation built on $95 oil. The inflation built on $130 oil has not arrived yet.
Put simply, the inflationary storm is not something the Fed can hike its way out of, because a rate hike does not clear a militia off an island.
This is the setup our Special Investment Report, Survive the Inflationary Storm, was written for. It details five precious metals mining plays built for exactly this environment: supply-driven inflation, a central bank behind the curve, and a bond market that no longer believes Washington can hold yields down. In 2025, under the same conditions, those positions rose 140%, 150%, 180%, 280%, and 574%.
Not one of them needed Hormuz to stay open. Not one of them cared who held Perim Island.
Normally this report sells for $499 as a standalone item. Given what Iran’s proxies did this week, we are making 100 copies available to the public.
Two exits closed. One report on what to own when that happens.
CLICK HERE to grab one of the remaining copies of Survive the Inflationary Storm.
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research