Brent crude is jumping 2.6% to USD 79.4/b this morning following the US/UK attack on more than 60 Houthi rebel targets in Yemen.
The US/UK is hoping that these attacks will put an end rockets and drones being shot by the Houthies towards ships in the Red Sea and the Bab-el Mandeb Strait. If that is the outcome then oil will flow normally through the Red Sea and oil price will fall back. One risk is that near every cellar in the Houthi controlled parts of Yemen is stacked full of rockets and drones. If so it will be near impossible for the US/UK to take them out and rockets and drones from the Houthies will continue to rain over ships in the Red Sea and the Bab-el Mandeb Strait. Maybe to the point that ships for all practical purposes will have to move around Africa. Some additional 40-80 million barrels of oil would then probably be tied up in transit. This oil needs to come from onshore stocks being drawn down which again will lead to a natural increase in the oil price of some USD 5-10/b. But besides that no oil production has so far been lost.
The key problem here is that the Houthies and what they have been doing lately isn’t the core problem. Rather it is a symptom and a consequence of the real problem which is October 7 and the following Israeli retaliation and destruction of Gaza. And this problem isn’t going away and will continue to feed unrest in the Middle East. One thing we can be sure about is that the unrest in the region will continue and also that there will be a retaliation following the US/UK attack in Yemen. The Houthies will probably shot a barrage of rockets and drones towards ships in the Red Sea and Bab-el Mandeb Strait just to show the US/UK that their attacks on Yemen have had little effect. But there will probably also be other retaliations elsewhere in the Middle East. Probably by Hezbollah in Lebanon towards Israel or maybe something unexpected elsewhere.
The attack on Yemen by the US/UK may not put much of a stop to anything of what’s going on in the Middle East right now. Rather it is an escalation with likely retaliations by Iran and its allies. The temperature in the region is rising. 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.
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