Oil prices rise on Middle East tensions as US, UK launch Houthi airstrikes

By Yongchang Chin

Oil prices jumped as the US and UK launched airstrikes against Houthi rebel targets in Yemen, raising the risk of a broader conflict across the Middle East that could threaten crude flows.

West Texas Intermediate rose as much as 2.4 per cent to approach $US74 a barrel. President Joe Biden said the US and allies had successfully conducted strikes against a number of targets after a string of attacks by the Iranian-backed group on vessels in the Red Sea. Radar sites and missile launchers were hit. Brent Crude also jumped nearly 2 per cent to $US78.92 following the strike. Current data for Tapis Crude will be available later today.

Oil prices have jumped after airstrikes by the US and UK against Yemeni rebels.
Oil prices have jumped after airstrikes by the US and UK against Yemeni rebels. Credit: AP

Earlier this week, the Houthis launched their largest assault to date on shipping in the key waterway despite the presence of a US-led naval force. That prompted warnings of retaliation from Washington. Adding to the turmoil, Iran seized a tanker off the coast of Oman on Thursday.

Tensions in the Middle East have been rising since the outbreak of the Israel-Hamas war in October, with the Houthis firing missiles at ships on an almost-daily basis over the past two months. The group has said it won’t back down until Israel stops fighting Hamas, which is also funded by Iran.

Oil has been buffeted since the start of the year, often moving more than $US2 each day without setting a clear direction. While the fighting in the Middle East has supported crude, concerns about rising non-OPEC+ supply, deep pricing cuts by Saudi Arabia, and expanding US stockpiles have weighed on prices.

“The US, UK had warned that action would take place if the Houthi rebels continued their attacks, so this action should not really be unexpected,” said Robert Rennie, head of commodity and carbon research at Westpac. Still, WTI may surpass $US75 and Brent could exceed $US80, he said.

The airstrikes are a gamble for the US and the UK, which have repeatedly said a priority amid the Israel-Hamas fighting is to keep it from spreading. There are concerns from Saudi Arabia and others that such action will inflame tensions.

Citigroup estimates that geopolitical risks in the Middle East have added $US2 to $US3 barrel to Brent, and that the risk premium may increase substantially if supply disruptions increased. Standard Chartered, meanwhile, said that oil is underpriced by at least $US10 a barrel.

The Houthi action in the Red Sea had prompted many commercial shippers to direct vessels around the southern tip of Africa, rather than risk a passage through the waterway that links to the Suez Canal. That’s increased costs.

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