Iran-Backed Houthis Expand Influence in Middle East Shipping

The rapid advancement of the Houthis toward a key shipping chokepoint places their financial network under scrutiny. This Iran-backed faction has evolved from a Yemeni insurgency into a regional powerhouse, now impacting global trade. Their latest territorial gains include Mocha port and an expansion toward the Bab el-Mandeb Strait, a critical route for maritime and energy trade.

For the Trump administration, the Houthi progression presents both financial and military hurdles. To address this, the U.S. is intensifying efforts to disrupt the funds supporting Iran and its allies. However, the Houthis have established an elaborate sanctions-evasion network, managing ports, trade routes, and numerous Yemeni citizens. The Treasury faces the challenge of cutting off funds without depriving civilians of essentials like food and fuel.

The Houthis threaten to close the Bab Al-Mandeb Strait through missile and drone strikes if Gulf nations join the U.S.-Israel conflict against Iran.

Adam Rousselle, founder of Between the Lines Research, asserts the Houthis operate a financial network expanding beyond Yemen. Ports under Houthi control are key revenue sources, with steep tariffs imposed on goods originating from rival Yemeni ports.

Nadwa Al-Dawsari, a Yemen expert, highlighted in her Sept. 1 testimony that territory is crucial for the Houthis. Control of land allows them to recruit, generate revenue, manufacture weapons, and manage smuggling routes.

The financial system supporting the Houthis isn’t merely Iran handing them cash. Instead, they are integrated into a broader Iranian commercial network. Most of their revenue stems from customs and fuel taxes. Treasury estimates the Houthis earn over $2 billion annually from oil sales, aided by free monthly shipments from Iranian-associated companies.

Sanctions can’t reach domestic oil extraction, but can target the systems connecting Sana’a to the outside world, such as exchange houses and digital wallets. Sa’id al-Jamal, identified by the Treasury as a central figure in this network, has facilitated millions in transactions, although evaluating the total Houthi wealth remains challenging.

Russia’s involvement has reportedly grown, supporting targeting data for attacks on Western ships and transferring petroleum products to Houthi-controlled ports. Chinese actors appear in the network, but lack confirmed direct government involvement.

The expansive Houthi network challenges U.S. efforts to economically isolate Tehran, as decentralized illicit finance networks remain hard to tackle.

Efforts should focus on points where Houthi finances interact with formal financial systems, targeting entities facilitating these transactions.

Pressuring Houthi finances is complicated by Yemen’s fragile humanitarian condition. The Treasury must carefully balance sanctions to avoid worsening civilian hardships.

Any solution requires a focus on maintained flows of humanitarian goods while eliminating fees that benefit Houthi authorities.

This challenge extends beyond Yemen, posing issues for dealing with any sanctioned actor leveraging unregulated financial systems globally.