Global oil prices saw a significant rise of over 4% in pre-market trading on Friday, following escalated tensions in the Red Sea. The price of WTI crude oil reached a high of $75.25, with an intraday increase of 4.39%. Similarly, Brent crude oil prices peaked at $80.75 per barrel, marking a 3.93% rise.
The price hike came in the wake of airstrikes conducted by the United States and the United Kingdom against multiple Houthi military targets in Yemen. The airstrikes were a response to attacks on Red Sea shipping by the Iran-backed group. Concerns over further disruptions to Red Sea shipping routes contributed to the oil price increase.
Further developments heightened these concerns, as Mohammed Abdul-Salam, a spokesperson for the Houthi rebels, stated on social media that the U.S. and U.K. airstrikes in Yemen lacked justification. Abdul-Salam emphasized that future targets would include Israeli ships or those heading to occupied Palestinian ports, as there was no legitimate reason for the aggression against Yemen since international navigation in the Red Sea and Arabian Sea wasn't threatened.
On the same day, multiple oil tankers in the Red Sea altered their course. Danish tanker group Torm announced on Friday that it would temporarily halt all transits through the southern part of the Red Sea.
Red Sea Conflict Intensifies
The severity of the Red Sea conflict became evident when Vincent Clerc, CEO of shipping giant Maersk, indicated in an interview that reopening key Red Sea trade routes might take months. Such a delay could impact the global economy, businesses, and consumers economically and through inflation.
Wall Street Journal previously reported that the situation in the Red Sea forced some oil tankers to detour around Africa's Cape of Good Hope. Many refineries and crude oil buyers turned to alternative sources like the United States. Some oil companies stated their collaborating shipping companies would stick to their original routes through the Red Sea rather than taking the longer, costlier detour around the Cape of Good Hope.
Since the Houthi rebel attacks on Red Sea merchant ships, there has been a significant reduction in the flow of oil products in the area.
Kpler shipping tracking company's analyst Viktor Katona noted that the volume of crude oil and refined products like diesel and gasoline passing through the Suez Canal in December dropped by about 40% compared to October.
The Houthi attacks were concentrated around the Bab-el-Mandeb Strait in the southwestern Arabian Peninsula. Previously, Iran's seizures were closer to the Strait of Hormuz, between Oman and Iran, near the Gulf of Oman, a critical juncture in oil transportation. ING analysts explained that over 20 million barrels of oil pass through the Strait of Hormuz daily, accounting for about 20% of global consumption.
Saul Kavonic, an energy analyst at MST Marquee, highlighted the potential impact of a major disruption in the Strait of Hormuz, which could lead to a tripling of oil prices compared to the 1970s and exacerbate the natural gas supply chain crisis.
Questioning the "Sense of Security" in Supply
Before the airstrikes, the prevailing market sentiment was that the Red Sea conflict would not significantly impact oil prices, trusting that "global market supplies were sufficient." Richard Bronze, geopolitical head at research company Energy Aspects, had stated last week that "a lot of effort would be needed to sustain a continuous rise in oil prices."
However, as the conflict's impact on shipping becomes increasingly unpredictable, the oil market's prices seem to be exposing the fragility of this "sense of security."
