(Bloomberg) — The price of oil jumped as the United States and its allies launched airstrikes against Houthi rebels in Yemen, in response to attacks on ships in the Red Sea, putting fuel and cargo flows through the vital waterway at risk.
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President Joe Biden said the strikes were carried out against a number of targets used by the Iran-backed group, and US officials said radar sites and missile launchers were hit. The tanker industry group said military forces in the region were advising ships to avoid a major checkpoint near Yemen. The Houthis said all US and British interests were now legitimate targets.
Brent crude, the global benchmark, rose as much as 3.6 percent to exceed $80 a barrel in London for the first time this year as investors tried to gauge whether an escalation in hostilities would spark a broader conflict in the Middle East.
Tensions have escalated in the region since the October 7 massacre of Israelis by Hamas, which the United States and the European Union consider a terrorist group. The Houthis have fired missiles at ships almost daily over the past two months, and have vowed not to stop until Israel ends its attack on Gaza.
The main upside risk for prices relates to Iran and whether it is drawn directly into the conflict, which could threaten oil supplies in a region that produces a third of the world’s crude oil. The war risk premium had previously been declining amid abundant production from non-OPEC+ producers and slowing demand growth.
“The fear in the oil market is that the region is on an unpredictable upward trajectory, as it will actually lose oil supplies at some point eventually,” said Bjarne Schildrup, senior commodities analyst at SEB AB.
The Houthis launched their largest attack yet on shipping in the Red Sea earlier this week, despite the presence of a US-led naval force. This led to warnings of retaliation from Washington. Iran also seized a tanker off the coast of Oman on Thursday, further inflaming the situation.
Biden left the door open to the possibility of taking additional steps against the Houthis.
“I will not hesitate to direct further measures to protect our people and the free flow of international trade as necessary,” he said.
Meanwhile, Iran condemned the US-British strikes, and the Foreign Office said they would only fuel insecurity and instability across the region, with the Houthis saying they would not be deterred.
Houthi attacks in the Red Sea have prompted many commercial shipping companies to reroute their ships around the southern tip of Africa, rather than risk passing through the waterway connecting the Suez Canal. So far, tanker markets have largely avoided the worst of this impact.
The attacks pushed Brent crude above its 50-day moving average for the first time since October. The move risks spurring additional buying by technical traders, even though it is a measure that has been steadily declining in recent weeks.
“Volatility in prices will definitely remain,” said Vandana Hari, founder of Vanda Insights, a consultancy. “It is an asymmetric tug of war between the bearish outlook on fundamentals and the supporting risk premium in the Middle East. As of now, both are expected to remain in play.
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-With assistance from Sharon Chu.
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