One Yemen government soldier has been killed and another seriously injured in overnight fighting in the mountainous province of Taiz, leaving the internationally recognised government under decades of casualties in just a few days.The international community's recognised government has already lost dozens of soldiers in Houthi attacks on state-held territory in just a few days, and in Taiz one has been killed and another injured seriously in overnight fighting. Army artillery bombed Houthi positions overnight in the central province of Marib, after a period of more than three years of relative calm, as clashes between the Iran-backed Houthi rebels and government forces escalated, raising fears that Yemen's civil war has the potential to flare again and become a new battleground in the wider Middle East war.

The events that have occurred since the end of July are not a typical incident. The Houthis struck a series of blasts against Yemeni government forces on 6 August, the largest offensive by the Iran-backed rebels since a UN-brokered truce which ended eight years of civil war in 2022. The truce that was supposed to last in 2022 fell apart last month when at least fifty-eight government soldiers were killed in rebel missile attacks on the Marib province and Hadramout last Saturday. Some days later, different clashes claimed the lives of about thirty more troops and injured fifteen more, leading to a rare government attack in several months, in response to Houthis' missile and drone attacks in Hadramout and Marib, which killed at least thirty and injured fifteen other soldiers. Army forces in Taiz this week repelled a Houthis' offensive on the al-Mafalis front and other southwards skirmishes in the Red Sea port town of al-Makha, with Yemeni artillery firing shots at Houthis' gathering near al-Fakhir market in the capital al-Shaarah. Yemen is now at its highest risk of a renewed large-scale conflict since it signed a truce in April 2022, a Yemen expert based in Cambridge said, while the UN envoy to the country said the truce was effectively over months ago and the danger of renewed all-out fighting is now real.

This escalation is different from previous scares because it is occurring offshore at the same time. The Houthis have declared and carried out a maritime blockade against the shipping of Saudi Arabia since late July and attacked Saudi's Abha airport, threatening ships passing through the Bab el-Mandeb Strait between the Red Sea and the Gulf of Aden. That's a huge issue for Riyadh's oil accounting. Saudi Arabia has been relying on its east-west pipeline from the Abqaiq crude fields to the Red Sea port of Yanbu, which now carries over seventy percent of the kingdom's crude exports, as it battles Tehran over the five-month-long crisis in the Strait of Hormuz. The Houthis would rob the one ability that allows Gulf oil to flow at scale: a sustained campaign against the Red Sea would force approximately a quarter of global oil supply to be simultaneously vulnerable to disruption along both oil and sea lanes, a scenario that has never really been seen before in the modern era.

Markets are taking note of the unease, albeit in a somewhat disjointed fashion. On Tuesday, attacks on ships in the Red Sea and the Gulf of Oman pushed Brent futures near eighty-nine dollars a barrel and West Texas Intermediate near eighty-three dollars, only to drop to around ninety dollars a barrel Wednesday morning, where it is two points off a year ago, but still twenty-four points higher. The latest monthly report by the International Energy Agency was issued amid a market-wide shortage of 1.8 million bpd this quarter due to the wider conflict in the Middle East, while an unusual supply cushion is on the opposite side: U.S. crude inventories rose by 17.4 million barrels last week, the biggest weekly increase since early 2023. Meanwhile, President Trump has ratcheted up his rhetoric, claiming Washington is in full command of the Strait of Hormuz and plans to impose more sanctions and a naval blockade to further choke off Iran's exports, only to do so with little effect on the traders who have to decide how much their regional allies are willing to dole out in return.

The economic impact of a lengthy Red Sea closure isn't theoretical shipping experienced one such closure. The number of volumes transiting Bab el-Mandeb fell by seventy percent in comparison with December 2023 following large transit firms' cancellation of operations in the Red Sea following the first wave of Houthis attacks. Any executives who experienced that time have not forgotten about the cost of it. During the Davos talks, Maersk's chief executive stated that the impact on shipping would be felt for months and Saudi Aramco's chief executive said that continued attacks on ships by the Houthis would lead to a “tanker shortage as voyages get longer and deliveries delayed”. Modellers of a short, contained disruption have estimated the impact on global inflation at only a few hundredths of a percentage point but warn that a prolonged standoff that drags on into next year could push the toll to the quarter of a percentage point level across 2024 and 2025, and even higher in the euro area where global inflation is estimated to be about 0.18 to 0.23 percentage points larger.

The situation is different once more for countries whose economies are dependent on imports, such as those outside the Atlantic alliance. China has an interest in forcing Tehran to curb the Houthis' activity because disruption of strategic trade routes would have a negative impact on its economy, and India and Russia have both considered establishing their own military bases near Djibouti to safeguard shipping interests in the corridor.