Oil prices jump as Iran war escalates with Houthi attacks on Israel
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A Houthi military spokesman announcing a new attack on Israel via a televised statement in Sanaa, Yemen, on March 28.
PHOTO: EPA
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SINGAPORE – Oil advanced on March 30 as Iran-backed Houthi militants in Yemen entered the Middle East war and more US troops arrived in the region, raising fears the widening conflict will cause further chaos for energy markets.
Brent crude – on track for a record monthly gain – surged more than 3 per cent at the open to US$116.43 a barrel, after settling 4.2 per cent higher on March 27.
US West Texas Intermediate rose 3.1 per cent to US$102.77, following a 5.5 per cent gain in the previous session.
While the Houthis did not say they would target vessels transiting through the southern Red Sea and the Bab el-Mandeb Strait, they have the capability to do so. The Saudi Arabian port of Yanbu, which the kingdom is using for some of its oil exports after the crucial Strait of Hormuz was effectively closed by the war, is also well within the range of Houthi missiles.
The threat from the Houthis to “Saudi oil infrastructure and exports through the Red sea outlet is like denying bypass surgery that worked well to arrest the full heart attack” of the Strait of Hormuz closure, said XAnalysts chief executive Mukesh Sahdev.
Brent has soared more than 50 per cent in March as the war between the US-Israel alliance and Iran upended global markets and triggered concern about a simultaneous spike in inflation and slowdown in growth. The conflict has entered its fifth week and is showing no sign of abating despite a diplomatic push by Washington last week and separate peace talks over the weekend in Pakistan.
Iran has choked off all but a fraction of the traffic passing through the Strait of Hormuz, the waterway that links the Persian Gulf to global markets. Tehran has moved to formalise its control of the artery, barring most vessels, while allowing a handful to pass, including from Pakistan, Thailand and Malaysia.
The involvement of the Houthis presents a new risk for crude markets. The group effectively shut the Red Sea to most Western shippers after the war in Gaza began in 2023, forcing vessels to reroute. Any threats to cargoes loaded via Saudi Arabia’s Yanbu would further constrain supplies. Riyadh has been ramping up exports through the Red Sea, cushioning the supply shock.
The move by the Houthis adds “upside risk mainly via shipping and Red Sea routing”, said Mr Haris Khurshid, chief investment officer at Karobaar Capital in Chicago.
“But unless it spills into broader Gulf infrastructure or Hormuz flows, it’s more volatility than a true supply shock,” he added.
Banks have been scrambling to calculate how the war – and prices – may evolve. Macquarie Group said last week that oil futures may hit US$200 a barrel if the conflict drags on until June and Hormuz stays shut in a scenario with 40 per cent odds.
The US has ordered thousands of troops to the region, fanning fears of a risky ground invasion. The Washington Post reported that the Pentagon is preparing for weeks of ground operations in Iran, citing US officials, but senior administration staff, including Secretary of State Marco Rubio, have downplayed such a move.
The conflict has hit other industries. Over the weekend, Emirates Global Aluminium sustained “significant damage” during an Iranian missile and drone strike on March 20. In addition, an Aluminium Bahrain facility was hit. BLOOMBERG
