How the U.S.-Led Attacks on Yemen’s Houthis Could Impact Oil Prices
The U.S. and its allies launched airstrikes on more than a dozen Houthi targets in Yemen, in retaliation for a spate of attacks on merchant vessels in the Red Sea. The attack represents a major escalation of tensions in the Middle East that have been simmering since the Hamas attack on Israel in early October. Brent jumped as much as 2.5% on fears there would be more disruption to shipping, and that the conflict could expand into a broader regional conflagration.
The Houthis, who are backed by Iran, have been targeting commercial ships traveling through the Red Sea as they approach the Suez Canal, which facilitates roughly 12% of global shipping traffic. Since October, Houthi militias have launched over 100 attacks targeting at least 10 merchant vessels, according to a statement last month from the Pentagon. The attacks have forced major shipping companies and oil giants to divert their ships to alternative routes, extending the length of the trip by roughly 30% and driving up freight rates.
The U.S. and U.K. airstrikes came after a warning from President Biden that he would not tolerate any threats to international trade and security. Biden said he acted in self-defense and in defense of U.S. allies and partners, and that he was prepared to take further action if necessary. The U.K. Prime Minister Boris Johnson echoed Biden's remarks and said the strikes were a proportionate response to the Houthi attacks.
The Houthis have vowed to continue their attacks on shipping and have condemned the U.S. and U.K. action as an aggression against Yemen and its people. Iran has also denounced the airstrikes as a violation of Yemen's sovereignty and a dangerous escalation of the situation. Iran has been accused of supplying weapons and training to the Houthis, who have been fighting a civil war against the Saudi-backed government since 2014.
The heightened geopolitical risks in the region have added a premium to oil prices, which have already been supported by OPEC+ production cuts and recovering demand amid the pandemic. Analysts say that any further escalation of the conflict could disrupt oil supply and demand, and push prices higher.
According to UBS Group AG, Brent could move above $80 a barrel in the coming months, as the oil market remains slightly undersupplied due to OPEC+ discipline. ING Groep NV says that the bigger risk is if the conflict spreads and the market starts seeing threats to flows coming out of the Persian Gulf, which would have a significant impact on oil prices. Vanda Insights says that crude prices could rise by another dollar or two, but expects a degree of restraint and diplomacy to keep the tensions from spiraling out of control.
The situation in Yemen and the Red Sea remains volatile and uncertain, and oil traders will be closely watching for any signs of further escalation or de-escalation. The outcome of this conflict could have major implications for the global oil market and the world economy.
Oil prices jump after U.S., Britain strike on Houthis in Yemen - CNBC
Houthi attack in Red Sea: Is higher commodity and crude oil prices in ... - MSN
What the US attack in Yemen means for oil prices, inflation - ABC News
Oil Prices Face Heightened Volatility After Weekend Drone Strike ... - MSN
The Houthis, who are backed by Iran, have been targeting commercial ships traveling through the Red Sea as they approach the Suez Canal, which facilitates roughly 12% of global shipping traffic. Since October, Houthi militias have launched over 100 attacks targeting at least 10 merchant vessels, according to a statement last month from the Pentagon. The attacks have forced major shipping companies and oil giants to divert their ships to alternative routes, extending the length of the trip by roughly 30% and driving up freight rates.
The U.S. and U.K. airstrikes came after a warning from President Biden that he would not tolerate any threats to international trade and security. Biden said he acted in self-defense and in defense of U.S. allies and partners, and that he was prepared to take further action if necessary. The U.K. Prime Minister Boris Johnson echoed Biden's remarks and said the strikes were a proportionate response to the Houthi attacks.
The Houthis have vowed to continue their attacks on shipping and have condemned the U.S. and U.K. action as an aggression against Yemen and its people. Iran has also denounced the airstrikes as a violation of Yemen's sovereignty and a dangerous escalation of the situation. Iran has been accused of supplying weapons and training to the Houthis, who have been fighting a civil war against the Saudi-backed government since 2014.
The heightened geopolitical risks in the region have added a premium to oil prices, which have already been supported by OPEC+ production cuts and recovering demand amid the pandemic. Analysts say that any further escalation of the conflict could disrupt oil supply and demand, and push prices higher.
According to UBS Group AG, Brent could move above $80 a barrel in the coming months, as the oil market remains slightly undersupplied due to OPEC+ discipline. ING Groep NV says that the bigger risk is if the conflict spreads and the market starts seeing threats to flows coming out of the Persian Gulf, which would have a significant impact on oil prices. Vanda Insights says that crude prices could rise by another dollar or two, but expects a degree of restraint and diplomacy to keep the tensions from spiraling out of control.
The situation in Yemen and the Red Sea remains volatile and uncertain, and oil traders will be closely watching for any signs of further escalation or de-escalation. The outcome of this conflict could have major implications for the global oil market and the world economy.
Sources:
How the U.S.-Led Attacks on Yemen’s Houthis Could Impact Oil Prices | TIMEOil prices jump after U.S., Britain strike on Houthis in Yemen - CNBC
Houthi attack in Red Sea: Is higher commodity and crude oil prices in ... - MSN
What the US attack in Yemen means for oil prices, inflation - ABC News
Oil Prices Face Heightened Volatility After Weekend Drone Strike ... - MSN