Concerns of broader conflict escalate as oil prices surge following US-led airstrikes in Yemen
A surge in oil prices ensued following US-led airstrikes on Houthi targets in Yemen, causing a notable impact on energy markets. On Friday, US crude experienced a significant spike of up to 4.5%, reaching $75.25 per barrel, while Brent crude, the global benchmark, saw a 4% increase, briefly surpassing the $80-per-barrel mark. However, both oil contracts later tempered their gains to around 2% by midday.
This volatility underscores the potential risks of price fluctuations affecting consumers and businesses due to the escalating security situation in the Middle East. The airstrikes, responding to repeated attacks on commercial shipping in the Red Sea by Iran-backed Houthis, raise concerns about a broader regional conflict that could disrupt oil supplies from the Middle East.
Robert Yawger, Vice President of Energy Futures at Mizuho Securities, expressed heightened concerns about dragging multiple oil-producing countries into the conflict, emphasizing the escalating nature of the situation. There is also apprehension about potential retaliatory strikes from the Houthis targeting oil facilities in Saudi Arabia, reminiscent of the 2019 drone attack that briefly disrupted approximately 5% of the world’s oil supply.
Despite the gains on Friday, oil prices remain lower than pre-October 7 attacks by Hamas against Israel, primarily due to worries about oversupply. John Kirby, the coordinator for strategic communications at the White House National Security Council, emphasized the U.S. efforts to prevent further escalation, acknowledging public anxiety about the situation.
Earlier in the week, oil prices had surged following Iran’s seizure of an oil tanker in the Gulf of Oman. However, these gains diminished as attention shifted back to the fundamentals of the market. Matt Smith, Lead Oil Analyst at Kpler, noted the ongoing battle between market fundamentals and geopolitical factors, with concerns about incidents in the Red Sea and the Strait of Hormuz, crucial maritime chokepoints.
Helima Croft, Head of Global Commodity Strategy at RBC Capital Markets, cautioned energy investors to remain cautious, mentioning the lingering impact of fears about Russian supply disruptions in 2022. She highlighted a “very real risk” to energy facilities in the region if Iran becomes directly involved in the conflict, suggesting the potential for further escalation and a subsequent sharp rise in oil prices.
In summary, the recent airstrikes and geopolitical tensions have injected uncertainty into oil markets, prompting fluctuations in prices as the situation in the Middle East evolves.
