Houthis Open Second Front, Iran Strikes US Troops, Oil Hits $115. Upgrading to CRITICAL.
The war widened dramatically over the weekend. Houthis entered the conflict firing missiles at Israel and threatening to close Bab al-Mandeb -- a second global chokepoint. Iran struck a US base in Saudi Arabia, injuring 12-15 troops and damaging aircraft. Tehran dismissed all negotiations. Oil surged to $115 with Brent on track for its largest monthly gain on record. With two chokepoints now threatened, US casualties mounting, and diplomacy dead, we're upgrading to CRITICAL for the first time.
I’ve been writing these pulses for three weeks. This is the first time I’m going CRITICAL.
Friday’s pulse laid out the three conditions that kept us at RED: the Strait hadn’t fully closed, there was no confirmed Iranian retaliation after the nuclear site strikes, and the S&P hadn’t broken below the 200-week moving average. Over the weekend, two of those three broke.
Iran Retaliated — Hard
After Israel struck two nuclear facilities on Friday (Arak and Yazd), the IRGC promised the response would “no longer be an eye for an eye.” They delivered. On Saturday and Sunday, Iran launched 10 missile salvos at Israel, including a strike on a chemical plant in the Ne’ot Hovav industrial zone near Beersheba. Human Rights Watch flagged Iran’s use of cluster munitions — banned under international law.
More significantly, Iran struck Prince Sultan Air Base in Saudi Arabia with six ballistic missiles and 29 drones, injuring 12-15 US troops (at least five seriously) and damaging two Air Force refueling aircraft and an E-3 Sentry AWACS. This is the most significant direct attack on US forces since the war began. Hitting US troops in a third country changes the political calculus in Washington — it’s the kind of event that historically triggers escalation, not de-escalation.
Houthis Enter the War — Second Chokepoint Now Threatened
This is the development that tips the balance. Yemen’s Houthis launched their first missile and drone attacks on Israel on Saturday, declaring they would continue “until the aggression against all fronts of the resistance ceases.” Both salvos were intercepted, but the military significance is secondary to the strategic significance.
The Houthis control the approaches to Bab al-Mandeb — the strait at the southern entrance of the Red Sea through which 12% of global trade and 4.8 million barrels of oil per day transit. Their deputy information minister told local media that “closing the Bab al-Mandeb strait is among our options” in the next phase.
Let that sink in. Two global shipping chokepoints are now threatened simultaneously. Hormuz (20% of global oil flows, currently reduced to a trickle under Iran’s tolling system) and Bab al-Mandeb (12% of global trade, gateway to Suez). The last time both were threatened at once was never. There is no historical precedent for this.
The Houthis have Iranian-supplied anti-ship ballistic missiles with 200km range, sea-skimming cruise missiles, and one-way attack drones. These aren’t empty threats — they proved their capabilities during 2024-2025 Red Sea attacks that rerouted 90% of container traffic away from the Suez route.
Diplomacy Is Dead
On Sunday, Iranian parliament speaker Ghalibaf explicitly rejected ongoing negotiations with the United States, saying Iran “could not be forced into submission.” Iran’s Foreign Minister Araghchi dismissed the US 15-point proposal as “extremely maximalist and unreasonable.”
Iran’s counter-demands include: end all attacks by US and Israel, create mechanisms to prevent war resumption, compensation for damages, and international recognition of Iranian sovereignty over the Strait of Hormuz. These aren’t negotiating positions — they’re terms of surrender addressed to the wrong side.
Meanwhile, Trump claimed Iran has agreed to “most of” his 15 points. Iran categorically denies this. Rubio told Al Jazeera that Trump “prefers diplomacy” — but preferring diplomacy while your ally bombs nuclear sites and a new belligerent enters the war is not a peace strategy.
The April 6 strike pause expiration is now seven days away with no diplomatic framework in place.
Oil Is Telling the Truth
Brent crude hit $115.35 this morning, up from Friday’s $112.57. CNBC reports Brent is on track for a 51% monthly gain — the largest monthly surge on record. Goldman estimates a $14-18/barrel geopolitical risk premium baked into current prices. With Houthis now threatening a second chokepoint, that premium has room to grow.
For context: Strait of Hormuz transit has collapsed from 138 vessels/day pre-war to a trickle — just 142 total transits between March 1-25. Iran’s “tolling system” selectively allows ships from China, Russia, India, Iraq, and Pakistan. Everyone else waits.
Markets: The Bounce That Means Nothing
S&P futures are up ~0.7% in premarket, with the Dow gaining ~300 points. This is a textbook relief bounce in a downtrend — the same kind that got sold on Thursday when the strike pause was extended. The VIX opened at 27.54 but is already climbing toward 31. The 30-year Treasury yield eased slightly to 4.94%, still a hair from the 5% threshold.
The S&P 200-DMA sits around 6,592. Friday’s close was 6,369 — that’s 223 points below, the widest gap since the war began. Any relief rally needs to close a 3.5% gap just to touch the trend line, and eight consecutive closes below it suggest this isn’t a dip but a trend change.
Tomorrow’s Conference Board consumer confidence report (10 AM ET, March 31) will be the next data catalyst. February was 91.2. Given UMich’s collapse to 53.3, expectations are dire.
Scorecard
| Condition | Friday PM | Monday AM | Change |
|---|---|---|---|
| Iran ceasefire | Iran rejected 15-point plan; Israel escalated | Parliament rejects talks; 10 salvos at Israel | Worse |
| Strait reopens | Tolling system, ~5 ships/day | No change; Bab al-Mandeb now also threatened | Worse |
| Oil below $75 | Brent $112.57 | Brent $115.35, record monthly surge | Worse |
| VIX below 20 | ~28-30 range | Opened 27.54, climbing to ~31 | Slightly worse |
| S&P holds 200-DMA | 8th close below (6,369, -246 under) | Futures +0.7%, still ~220 below | No change |
| Rate expectations | >50% probability of hike | No new data | No change |
| 30-year yield at 5% | 4.95% | 4.94%, marginally lower | Marginally better |
| Dow correction | Entered correction (-10%) | Futures up slightly | No change |
| Ground troops ruled out | US admits war extending past timeline | Vance: war will continue “a little while longer” | No change |
| Consumer health | UMich 53.3, lowest since Dec | Conf Board due tomorrow | Pending |
| NEW: Houthis in war | N/A | Entered war, fired missiles at Israel | New risk |
| NEW: Bab al-Mandeb threat | N/A | Houthis say closure “among our options” | New risk |
| NEW: US troops struck | N/A | 12-15 injured at Prince Sultan Air Base, Saudi Arabia | New risk |
Net: three conditions worsened (diplomacy, oil, second chokepoint). Three new risks materialized (Houthis in war, Bab al-Mandeb threat, direct attack on US troops). Zero conditions improved. The conflict has widened from a US-Israel vs. Iran confrontation into a multi-front regional war.
Historical Context: 1973 Yom Kippur War / Oil Embargo
The 1973 analog gains a new and troubling parallel this weekend. During the original embargo, what started as a bilateral conflict (Israel vs. Egypt/Syria) expanded into a multi-state economic war when OAPEC members joined the embargo one by one. The Houthis entering the current conflict follows the same pattern — allies of the primary combatant opening new fronts and threatening additional chokepoints. In 1973, the coalition nature of the embargo made it harder to resolve because no single actor controlled escalation. That’s exactly where we are now.
Similarities:
- Middle East military conflict disrupting oil supply through strategic chokepoint
- Conflict widening as allied actors join (OAPEC members in 1973; Houthis in 2026) — this is new and directly parallel
- Economy already weakening (0.7% GDP then and now)
- Central bank trapped between inflation and growth
- Diplomatic proposals rejected while fighting intensifies on multiple fronts
- Market selling off on positive catalysts — the structural damage signal
- Oil recording historically extreme price moves (embargo shock then; 51% monthly surge now)
Differences (and which way they cut):
- Valuations much higher today (CAPE ~39 vs ~18) — cuts against us, more downside potential
- US more energy-independent — partially favorable, but $115 oil still damages the consumer
- 1973 had one chokepoint (Suez was already closed since 1967); today has two simultaneously threatened (Hormuz + Bab al-Mandeb) — cuts sharply against us, unprecedented supply disruption risk
- No rate hike expectations in early 1973 (Fed was accommodative); today >50% probability of a hike — cuts against us, monetary policy can’t cushion
- Direct attacks on US troops didn’t occur in 1973 — adds escalation pressure absent from the analog
- Iran has no unified command equivalent to OAPEC; Houthis operate semi-independently — makes resolution harder because there’s no single negotiating counterparty
Strategy performance during the analog window (Oct 6 1973 — Mar 18 1974):
| Strategy | Typical 5M Return | Typical 5M Vol | Analog Return | Analog Max DD | Analog Vol |
|---|---|---|---|---|---|
| Buy & Hold | +4.5% | 13.3% | -11.0% | -18.6% | 19.6% |
| 200 SMA Trend | +1.8% | 10.6% | -4.5% | -5.5% | 5.6% |
| 12M Momentum | +2.7% | 11.3% | +0.0% | 0.0% | 0.0% |
| RSI Mean Reversion | +0.0% | 5.9% | -2.8% | -10.1% | 17.6% |
Interpretation: The 1973 numbers are instructive but likely understate today’s risk. The embargo’s supply disruption ran through a single mechanism (OAPEC production cuts). Today’s disruption runs through at least three: Iran’s Strait of Hormuz blockade, the threat of Houthi closure of Bab al-Mandeb, and direct military destruction of infrastructure. The compounding nature of these disruptions — plus the higher starting valuations, the rate hike overhang, and the absence of any diplomatic framework — suggests the downside distribution is wider than what 1973 delivered. The 200 SMA trend strategy’s -4.5% vs buy-and-hold’s -11% continues to demonstrate the value of systematic risk management, but investors should understand that even trend-following strategies can experience larger drawdowns when correlations spike across asset classes.
Why CRITICAL Now
Three things changed over the weekend that cross the threshold:
-
Second chokepoint. The Houthi entry transforms this from a single-chokepoint disruption into a potential dual-chokepoint crisis. Hormuz + Bab al-Mandeb simultaneously threatened has never happened before.
-
US casualties. Iran striking US troops in Saudi Arabia — a third country — is the kind of event that historically triggers escalation spirals, not peace talks. The political pressure on the White House to respond forcefully will intensify.
-
Diplomatic collapse. Iran’s parliament rejecting talks, not just the government but the legislative body, closes the door on the Pakistan-mediated channel. There is no active diplomatic framework with seven days until the strike pause expires.
What would bring us back to RED: Houthis explicitly ruling out Bab al-Mandeb closure. Iran reopening any diplomatic channel (direct or mediated). Oil sustaining below $105. S&P reclaiming 6,500. VIX closing below 25. Any one of these would suggest the widening is stabilizing. Right now, none are moving in the right direction.
What would change my mind entirely: An actual ceasefire framework with monitoring mechanisms. Strait of Hormuz returning to >50 transits/day. Oil below $90. The S&P reclaiming the 200-DMA (~6,592). Rate hike probability dropping below 25%.
Key dates:
- Today (Mar 30) — Watch Houthi actions at Bab al-Mandeb; any interdiction of shipping is a massive escalation
- Mar 31 — Conference Board consumer confidence (March); expect ugly
- Apr 2 — USMCA auto tariff exemptions expire
- Apr 6 — US strike pause expires (8 PM ET) — 7 days away, no deal in sight
- Apr 9 — Q4 GDP final revision (third estimate)
- Apr 28-29 — FOMC meeting (rate hike now on the table)
Sources: Times of Israel — 10 Iranian salvos target Israel Sunday, Stars and Stripes — 12 US troops injured in attack on Saudi base, TIME — Houthis enter the Iran war, Al Jazeera — Houthis threaten Bab al-Mandeb closure, Fortune — Iran dismisses diplomatic talks, Al Jazeera — Iran calls US proposal maximalist, CNBC — Oil prices heading for record monthly surge, HRW — Iran cluster munition strikes, CNN — Day 30, Iran warns against ground invasion, France 24 — Houthi attacks threaten Red Sea shipping, Bloomberg — Houthis join war, US troops arrive, IBTimes — Futures rise on talk hopes, Al Jazeera — Rubio says Trump prefers diplomacy, Wikipedia — Strait of Hormuz crisis