Oil tops $100 as Houthi attacks in Red Sea amplify supply risks

Oil topped $100 a barrel for the first time in two months after Iran-backed Houthi militants said they attacked two Saudi Arabian tankers in the Red Sea, escalating the Middle East conflict and threatening deeper supply disruptions.

The Yemen-based Houthis said they fired missiles and drones at the vessels to enforce a blockade of Saudi ports announced this week.

The attacks open a new front in the months-long conflict in the region, with the Iran war already snarling traffic through the Strait of Hormuz, the gateway to the Persian Gulf. Targeting the Red Sea imperils the critical detour route that the Saudis used to keep oil barrels flowing amid the Hormuz disruptions.

They also come as exports from major producer Kazakhstan are endangered by the Russia-Ukraine war, and the world’s oil inventories are depleted by months of conflict, risking a painful price spike.

Brent futures have surged more than 30% since the start of the month to trade near the highest since late May.

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In recent days, Iran has struck vessels in Hormuz, while the US has bombarded the Islamic Republic over the past 12 days and restored a blockade of its ports. Tehran has responded by attacking US allies in the region. Some analysts see prices returning to triple digits later this year if hostilities persist.

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“Round 2 of the military conflict is going to be broader than round 1,” Bob McNally, president of Rapidan Energy Group and a former White House official, said in a Bloomberg television interview. “The risks are great, not only to shipping, but also to energy infrastructure.”

Washington and Tehran have both played down the prospect of peace talks, raising the possibility of prolonged hostilities that could tighten oil markets. President Donald Trump threatened to bomb bridges and power plants, and reiterated threats to strike Pickaxe Mountain, a suspected Iranian nuclear site.

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Meanwhile, exports through the Bab el-Mandeb Strait at the bottom of the Red Sea have been a lifeline for oil exports since the beginning of the Iran conflict. Some vessels are already avoiding the route now, and buyers in India and other parts of Asia are contemplating a switch to longer and potentially costlier routes via the Suez canal.

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Still, two China-owned oil tankers appeared to be undeterred by the risk, with one exiting the Red Sea’s Bab el Mandeb and another on course to follow, according to ship-tracking data.

Meanwhile, Kazakhstan is being forced to stop piping crude to its main export terminal on Russia’s Black Sea coast – the Caspian Pipeline Consortium facilitiy — following a spate of drone attacks on tankers.

Prices:

Brent for September settlement was 6% higher at $99.70 a barrel as of 9:28 a.m. in New York.
WTI for September delivery gained 4.7% to $90.91 a barrel.

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