Overview
Since July, Saudi Arabia’s longstanding conflict with the Houthis, an Iran-backed armed group that controls western Yemen, has reignited amid the escalating US-Iran war. The conflict has resulted in a blockade on Saudi shipping in the Red Sea, damage to oil infrastructure, deadly attacks on Saudi public sites, and damage to the Kingdom’s oil exports and economic diversification. A decisive end to the conflict is highly unlikely due to Houthi resilience, fractious anti-Houthi partners in Yemen, and Saudi hesitance to engage on the ground, but a pragmatic ceasefire in the coming months is achievable. Nonetheless, risks will remain baked in, casting a long shadow over Red Sea shipping, Saudi AI and tourism ambitions.
Scale and Context of the Conflict
Renewed Saudi-Houthi conflict kicked off in July of this year, when the Houthis responded to earlier Saudi strikes on the Sanaa airport (which, according to international media, had been an attempt to disrupt regular Iranian shipments of missile and drone equipment, advisors, and personnel). The decade-plus conflict had been mostly paused since a de facto truce was reached in 2022, in which a UN-brokered agreement allowed the cessation of hostilities and a limited opening of airports and roads in Houthi-controlled territory. The Houthis had threatened before to enter the war on behalf of their patron and ally Iran but held back until they felt the Kingdom violated the terms of their de facto ceasefire.
The renewed conflict began with exchanging airstrikes on military targets, but both sides quickly moved up the escalatory ladder. Houthi airstrikes have damaged Aramco oil facilities and offices, taken Saudi Arabia’s Yanbu pipeline offline for two weeks, and struck Riyadh, Dhahran, and other major cities. The Houthis also hit King Khalid International Airport in Riyadh – a strike in which 13 were killed, making it among the deadliest foreign attacks in Saudi Arabia’s history. In July, the Houthis announced a blockade on all Saudi shipping in the Red Sea, putting more pressure on Saudi oil exports (which had rerouted from Gulf ports to the Red Sea, and then could exit the region via the Suez Canal). The Red Sea blockade and damage to oil infrastructure have contributed to persistently high global oil prices, while escalating strikes on Saudi civil targets have endangered the Kingdom’s economic transformation. Its Vision 2030 development plan targets a transition towards tech, finance, and tourism with an eye toward eventual oil demand decline; uncertainty from Houthi strikes has caused Riyadh to cancel high-profile business summits and close its major airports, while hotel vacancies have topped 50%.
Saudi Arabia has responded in kind to Houthi aggression. In October, Yemen’s Saudi-backed, internationally recognized government (IRG) mounted a major ground offensive in western Yemen. The IRG and allied forces have managed to recapture key sites around the Bab al-Mandeb chokepoint, weakening Houthis’ ability to enforce the blockade on Saudi ships. Saudi Arabia has also carried out extensive airstrikes on Houthi military positions, mostly along the Red Sea coast. Saudi Arabia and its allies in Yemen have used increasingly advanced weaponry, a signal to the Houthis of the potential for escalation (such as Saudi Arabia’s reported first use of a Chinese-made Dongfeng 15 missile).
Prospects for Ceasefire or Peace
Neither the Houthis nor the Saudis have maximalist demands to end the conflict. This makes a near-term calm achievable, but resolution of the underlying drivers of conflict is all but impossible in the current context. Publicly, the Houthis’ win condition is Riyadh’s abandonment of the IRG, the lifting of all restrictions on Houthi-controlled seaports and airports, and the payment of war reparations. Privately, they would likely be content with the latter two, to which Riyadh has agreed before. While the Saudis would prefer to eliminate the military threat from the Houthis and unify Yemen in the name of long-term stability, Riyadh is more interested in avoiding a long-term war and reversing the immediate damage to its oil exports, business environment and tourism industry. The Kingdom was burned once in Yemen, and in the intervening years Riyadh has espoused a pragmatic regional strategy that prioritizes stability over transformation.
Saudi Arabia’s strategy thus far has been to build a military coalition to defend its borders and increase military pressure on the Houthis. However, a decisive military victory is unlikely: Yemen has its own regional notoriety as a “graveyard of empires,” with failed interventions by Egypt, South Yemen, and the Ottoman Empire (repelled by the Zaidi ancestors of the Houthis) in the last century still present in the region’s memory. Today, the Houthis’ patronage by Iran, durable foothold in western Yemen, low-cost warfighting style, and deep ideological conviction – not to mention Saudi hesitance to directly engage on the ground – make a decisive victory unlikely. Instead, Saudi coalition-building seeks to bolster Saudi defenses, blunt the strategic impact of Houthi offenses, and raise diplomatic momentum towards a negotiated settlement, especially in response to costs in the Red Sea.
Saudi coalition-building could lay the groundwork to lessen the impact of the Houthis’ strikes on Saudi Arabia. After early reticence, Pakistan, Türkiye and the UK have agreed to bolster Saudi defenses with new aircraft, interceptors, and personnel. With Houthi leverage being slowly degraded and both sides open to a limited ceasefire, a negotiated settlement in the coming months is not out of the question. Such an agreement could include a cessation of hostilities and end to the Red Sea blockade in exchange for the reopening of Houthi-controlled sea and airports, and payment to the Houthis (which may be cast as salaries for public sector employees, which Riyadh pays in IRG-controlled Yemen and the Houthis argue they are owed). The Houthis, who consider themselves strategically independent from Tehran, would likely not wait for a ceasefire between the US and Iran to pursue their own agreement.
The Risks Ahead
A near-term pause in conflict offers significant upside risks. Normalization of shipping in the Red Sea would reduce uncertainty in beleaguered global energy markets (even if the actual impact on Saudi oil flows has been minimal since the October offensive). Resolution on one front would slow down horizontal escalation from the US-Iran war and take a perceived Iranian player temporarily off the chessboard. It could also allow Saudi Arabia to get its economic diversification back on track, reopening the market to international business, its booming AI industry, and the tourism sector. Alternately, inability to reach a ceasefire in the coming months couldcause disruption to energy markets to persist (especially if the US-enforced freedom of navigation in the Strait of Hormuz is disrupted), further depress Saudi diversification, and complicate the broadening regional war.
Whether or not a pause occurs, though, the factors that made decisive end to conflict impossible in previous rounds are still present, and the underlying drivers persist. Notably, Saudi Arabia’s new security partners have pledged no offensive assistance, leaving the Saudi-led coalition in Yemen (effectively just the Kingdom and the IRG) to continue the fight in Yemen. The campaign will continue relying heavily on airstrikes, a strategy that was seen as ineffective in previous rounds against the Houthis’ mobile, distributed structure. Ground campaigns in Yemen are led by fractured forces and have seen little success. And the anti-Houthi political landscape on the ground in Yemen is fractious, with some elements valuing their political or religious agendas more highly than defeating the Houthis. A unified Yemeni state would be necessary to defeat the Houthis and succeed them in governance in western Yemen. However, as it stands, it is highly possible that the defeat of the Houthis would be followed by a new conflict between anti-Houthi coalitions, not the stable southern neighbor Saudi Arabia needs.
In this context, some element of risk will remain baked into the Red Sea and Saudi economic diversification. Barring an unlikely territorial route, the Houthis will retain the ability to constrict the Red Sea as long as they exist. Projected instability in crude outputs for Saudi Arabia is already having significant budgetary ramifications domestically (the Saudi budget deficit more than doubled on war disruptions this year). A tighter economy will also affect the Kingdom’s ambitions to attract AI and finance industries, as well as its role as a key source of financing in the region and elsewhere. Geopolitical competition will remain an element even if the Iran factor is eliminated; new tensions could arise from a papered-over Saudi-Emirati rift. Emirati-Israeli security collaboration is growing with a Somaliland military base, which could be used to confront Houthi territory. Broader Red Sea instability has already been proven to have immense impacts on global supply chains; during the height of the Houthis’ 2023 blockade, traffic in the Bab al-Mandeb strait, which sees about 10% of all global trade during peacetime, was down 85%, causing shortages and spiking shipping costs due to alternate routes.
