Oil prices rose 2% on Friday 12th January 2024, as the United States and Britain carried out air and sea strikes on Houthi military targets in Yemen in response to attacks by the Iran-backed group on shipping in the Red Sea.
The attack added to market concerns about the potential impact a broader conflict in the Middle East would have on oil supplies from the region, especially those moving through the critical Straits of Hormuz.
Saul Kavonic, an energy analyst at MST Marquee noted that if a large part of Strait of Hormuz flows were to be halted, it would present up to three times the impact of the 1970’s oil price shocks and over double the impact of the Ukraine war on gas markets, atop already fragile supply chains and stock levels.
Brent crude futures were up US$1.52, or 2%, at US$78.93 a barrel, while U.S. West Texas Intermediate crude futures were US$1.43 firmer, also up 2%, at US$73.45, at 0728 GMT.
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The U.S. and British strikes are one of the most dramatic demonstrations to date of the widening of the Israel-Hamas war since it erupted in October. Witnesses in Yemen confirmed explosions throughout the country.
U.S. President Joe Biden said the “targeted strikes” were a clear message that the United States and its partners will not tolerate attacks on its personnel or “allow hostile actors to imperil freedom of navigation”.
A Houthis spokesperson said the group would continue to target shipping heading towards Israel.
The Houthi attacks in the Red Sea have disrupted international commerce on the key route between Europe and Asia, which accounts for about 15% of the world’s shipping traffic.
Since October, Houthis have attacked commercial vessels in the Red Sea to show support for Palestinian militant group Hamas in its fight against Israel.
Shipping giant Maersk and others are diverting vessels away from the Red Sea, warning customers of further disruptions.
The U.S.-led attacks also closely follow Iran’s seizure on Thursday of a tanker with Iraqi crude destined for Turkey in retaliation for the confiscation last year of the same vessel and its oil by the United States. The White House has condemned the seizure.
The Houthi’s attacks have been concentrated on the Bab al-Mandab Strait to the southwest of the Arabian Peninsula. Iran’s seizure was closer to the Strait of Hormuz between Oman and Iran, which analysts say is a major concern.
The Gulf of Oman is very near the Strait of Hormuz, a critical chokepoint for oil flows.
More than 20 million barrels/day of oil moves through the Strait of Hormuz, which is equivalent to around 20% of global consumption, ING analysts said in a note.
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