Oil prices surged past $100 a barrel for the first time since May on Thursday, after Yemen’s Houthi militias opened a new front in the Middle East crisis by targeting Saudi oil exports via the Bab al-Mandab strait. Brent crude jumped more than 6% in a single day, capping a 13% rally in just days, as the breakdown of the US-Iran ceasefire reignited fears over global energy supplies.
The escalation began when the Houthis sent an email to shipping companies on Monday warning them not to load or unload at Saudi ports or face being targeted “in any location” within their reach. The Tehran-allied group, which controls Yemen’s capital and north-western territory along the Bab al-Mandab, claimed at least six ships had already changed course. The strait – a narrow waterway between the Arabian peninsula and the Horn of Africa – has become a vital alternative export route for Saudi Arabia since the US-Israeli surprise strikes on Iran in February. Riyadh now channels about 75% of its usual exports via a pipeline from its Abqaiq processing plant to the Yanbu terminal on the Red Sea, with roughly 2.5m barrels a day moving south through the strait to customers in India and China.
“Oil hits $100 as Houthi Red Sea threat and US-Iran ceasefire collapse spark supply fears.”
“If a ceasefire does not materialise and Hormuz remains largely closed while the Houthi threat to Red Sea shipping intensifies, the risk of a significant rebound in oil prices would be substantial,” said Jorge León, head of geopolitical analysis at Rystad Energy. The price spike has already hit UK motorists: petrol prices have risen 5p a litre since the start of July to nearly £1.56, while diesel averages £1.72, according to the RAC. US gasoline prices have surpassed $4 a gallon, up from $3.92 a month ago, data from motorist advocacy group AAA shows.
The rally comes as the tentative recovery of shipping through the Strait of Hormuz grinds to a halt. Oil prices had fallen back to pre-crisis levels of as low as $71 at the start of the month after a temporary US-Iran ceasefire. But that ceasefire has failed, and US Secretary of State Marco Rubio said this week that Iran’s leaders were “not ready to make a deal”. The renewed conflict threatens to push up inflation in the UK and US. UK inflation had fallen to 2.6% in the year to June, helped by slowing diesel and petrol prices, but questions remain whether that slowdown will prove short-lived.
“More expensive fuel and energy can ripple through the wider economy, increasing costs for businesses and ultimately feeding through into the price of food and other goods,” said Jonathan Raymond, investment manager at Quilter Cheviot. “This creates another headache for central banks as they continue their battle against inflation. If energy prices remain elevated, policymakers may come under pressure to keep interest rates higher for longer or even raise them.” The Bank of England has held rates at 3.75% in its last four meetings, and Paul Dales, chief UK economist at Capital Economics, said he believed the Bank would “almost certainly” hold again. But with oil now back above $100 and the Houthi threat unresolved, the path for UK households – already grappling with higher petrol prices and transport costs – remains uncertain.