Taps Coogan – January 31st, 2024

Dr. Anas Alhajji, creator of Energy Outlook Advisors, recently spoke with Macro Voices‘ Erik Townsend about the impacts of the Houthi attacks on the Red Sea as well as his outlook for energy markets in 2024.

Dr. Alhajji is arguably the best public voice on energy markets at this point, and despite his admission that his limited bullishness on oil for the fourth quarter of 2023 was wrong, he wasn’t that far off and has been largely on target for the last couple of years.

As far as his view that the main risk related to the Houthis is not the Houthis themselves but the risk of a instability in Egypt, we’ll throw in our two cents:

Even though, as Dr. Alhajji notes, the Houthis are a relatively small regional force that should in theory be easy to subdue, they are persisting with attacks despite several belated and telegraphed strikes by the US/UK. Completely halting Houthi/Iranian attacks on the Red Sea is not likely to be achieved via the sort of incremental airstrikes the US is likely to execute for the foreseeable future.

On the other hand, the sort of overwhelming response needed to re-establish deterrence is disproportionate to the US interests at stake. Dr. Alhajji comments aside, US shipping routes simply don’t use the Suez canal nearly as much as Europe, Asia, North Africa, etc… More importantly, the US getting directly into disproportionate military engagements every time there is a bad actor somewhere in the region is exactly the behavior Iran is trying to elicit with its strikes and activities across the region. Iran (with support from Russia and China) wants the US sucked back into an ill-defined, unpopular, and strategically tertiary Middle-Eastern conflict.

All of which highlights the bigger problem with the last 70 years of US foreign policy. Despite funneling endless billions of military aid to its various ‘allies’ around the world, including over $1 billion-a-year to Egypt, there is no expectation that Egypt (or anyone) has the means or willingness to actually do anything about these attacks in their backyard.

Of course, the extra irony is that one of the only US regional partners since World War II that has actually shown military competence, the ability to use US military aid even remotely effectively, and the willingness to fight, we’re apparently going to now leave out in the cold in the middle of a war.