Oil Tops $80 As Strikes Against Houthis Raise Middle East Risks

(Bloomberg) -- Oil jumped as the US and its allies launched airstrikes against Houthi rebels in Yemen, retaliating for attacks on ships in the Red Sea that have imperiled flows of fuel and goods through the vital waterway.

President Joe Biden said strikes had been conducted against a number of targets used by the Iran-backed group, with US officials saying radar sites and missile launchers were hit. A tanker industry group said military forces in the region were advising ships to avoid a key chokepoint near Yemen. The Houthis said all US and UK interests are now legitimate targets.

Global benchmark Brent rose as much as 3.6% to top $80 a barrel in London for the first time this year as investors tried to gauge whether the escalation in hostilities would spark a broader conflict in the Middle East.

Tensions in the region have been rising since the Oct. 7 massacre of Israelis by Hamas, which is considered a terrorist group by the US and European Union. The Houthis have fired missiles at ships on an almost-daily basis over the past two months, and have vowed not to let up until Israel ends its assault on Gaza.

The main upside risk for prices concerns Iran and whether it’s drawn directly into the conflict, which could threaten oil supply in a region that produces a third of the world’s crude. The war-risk premium had previously been easing amid ample output from non-OPEC+ producers and slowing demand growth. 

“The fear in the oil market is that the region is on an unpredictable escalating path, where at some point down the road supply of oil will indeed in the end be lost,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.  

The Houthis had launched their largest assault to date on shipping in the Red Sea earlier this week, despite the presence of a US-led naval force. That prompted warnings of retaliation from Washington. Iran also seized a tanker off the coast of Oman on Thursday, further inflaming the situation.

Biden left open the possibility of additional moves against the Houthis.

“I will not hesitate to direct further measures to protect our people and the free flow of international commerce as necessary,” he said.

Iran, meanwhile, condemned the US-UK strikes, with the foreign ministry saying they would only fuel insecurity and instability across the region as the Houthis said they wouldn’t be deterred.

The Houthi assaults in the Red Sea have prompted many commercial shippers to redirect vessels around the southern tip of Africa, rather than risk a passage through the waterway that links to the Suez Canal. Until now, oil tanker markets had largely avoided the worst of that impact. 

The attacks pushed Brent crude above its 50-day moving average for the first time since October. That move risks spurring additional buying by technical traders, though it’s a gauge that has been steadily declining in recent weeks. 

“The fluctuations in prices will absolutely remain in place,” said Vandana Hari, founder of consultants Vanda Insights. “It’s an uneven tug-of-war between a bearish outlook on fundamentals and a supportive Mideast risk premium. As of now, both can be expected to remain in play.”

--With assistance from Sharon Cho.

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