Former US Secretary of State Mike Pompeo warned that Iran is leveraging its Houthi allies in Yemen to increase pressure on the United States and Saudi Arabia. He described this escalation as a critical component of Tehran’s regime survival strategy.

Strategic Escalation via Proxies

Pompeo issued the warning in a post on X on Wednesday. He stated that Tehran is using its Houthi proxies to raise the stakes for Washington and Riyadh.

"This is a critical part of the regime’s survival strategy, and cannot be allowed to succeed," he wrote.

Regional Military Developments

Saudi Crown Prince Mohammed bin Salman reportedly sought military assistance from President Donald Trump against Yemen’s Houthi rebels last week. Reuters reported that Trump offered intelligence support instead of direct US strikes.

The Houthis subsequently seized the Red Sea port of Mocha and reached Perim Island near the Bab el-Mandeb Strait. This development raised concerns over another major energy shipping route while the Strait of Hormuz remained severely disrupted.

Broader Conflict Context

The escalation increased pressure on Trump’s efforts to end the Iran conflict. UN officials warned that Yemen had entered a "new and more dangerous phase." The developments also raised concerns over energy shipments as Saudi Arabia increasingly relied on the Red Sea route.

Last month, Trump called off a planned attack on Iran and announced negotiations with Tehran focused on the Strait of Hormuz and Iran’s nuclear program. Iran denied asking Trump to halt the attack and stated that an Oman-backed shipping route did not mean the Strait would reopen.

In July, the Houthis threatened a maritime blockade of Saudi Arabia, raising concerns over global energy supplies and shipping through the Bab el-Mandeb Strait. The Trump administration had ordered additional strikes on Iranian military targets as ceasefire talks continued, while oil prices remained elevated amid concerns over disruptions to key shipping routes.

Iran’s Parliament Speaker Mohammad Bagher Ghalibaf mocked the Federal Reserve’s recent interest rate hike, arguing that geopolitical control over shipping chokepoints drives inflation more than monetary policy.

Ghalibaf posted a satirical "Straits Taylor Rule" on X on Wednesday, adding terms for the Strait of Hormuz and Bab el-Mandeb to the standard economic formula central banks use to set rates. He stated that the Fed’s neutral rate fails to account for the risk premium tied to these corridors.

The Fed Delivered the Hike

The Federal Reserve raised the federal funds target range by 25 bps to 3.75%-4.00% on Wednesday, marking its first rate increase since 2023. U.S. producer prices rose 5.4% year-over-year in August, up from 4.8% in July, driven largely by higher energy costs tied to the Iran war.

Oil Prices Remain Elevated

The war in Iran, which started in February, has disrupted global shipping and sent oil prices above $100 a barrel this month. At the time of writing, Brent crude was up 0.22% at $105.84, while WTI futures were down 0.30% at $102.12.

The Strait of Hormuz typically handles roughly one-fifth of global oil and LNG shipments, according to the International Energy Agency. Rising gasoline and diesel prices have prompted retailers like Costco Wholesale Corp. (NASDAQ: COST) to raise prices of their private-label motor oil and introduce weekly purchase limits.

What the Numbers Show

A divergence exists between Iran’s claim of setting the risk premium and U.S. military data on shipping volume. While Ghalibaf argued that the Fed cannot influence chokepoints, U.S. Central Command spokesman Capt. Tim Hawkins told Al Jazeera that roughly 900 million barrels of oil have passed through the Strait of Hormuz since May, describing the blockade as "highly effective" but noting Iran does not fully control the waterway.

Treasury Secretary Scott Bessent has escalated "Operation Economic Outcast," a sanctions campaign aimed at cutting off Iran’s remaining financial lifelines.