Air strikes in Yemen raise global oil prices
Global oil prices rose by more than five per cent yesterday, after Saudi Arabia and its Gulf Arab Allies began bombing rebel targets in Yemen, which sits on a key shipping passage between Europe and the Arab Gulf
Specifically, Brent, the benchmark grade for more than half the world’s crude, gained as much as $3.30, or 5.8 per cent, to $59.78 a barrel in electronic trading on the London-based ICE Futures Europe exchange on yesterday.
Also, West Texas Intermediate futures, the U.S. marker, jumped as much as 6.6 per cent to $52.48 on the New York Mercantile Exchange.
While Yemen contributes less than 0.2 percent of global oil output, its location puts it near the centre of world energy trade.
The nation shares a border with Saudi Arabia, the world’s biggest crude exporter, and sits on one side of a shipping chokepoint used by crude tankers heading West from the Persian Gulf.
Yemen’s government collapsed in the face of an offensive by rebels known as Houthis, prompting airstrikes led by Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries.
The Gulf’s main Sunni Muslim power says the Houthis are tools of its Shiite rival Iran, another OPEC member, and has vowed to do what’s necessary to halt their advance.
“While thousands of barrels of oil from Yemen will not be noticed, millions from Saudi Arabia will matter,” said John Vautrain, who has more than 30 years of experience in the energy industry and is the head of Vautrain & Co., a consultant in Singapore. “Saudi Arabia has been concerned about unrest spreading from Yemen.”
Yemen produced about 133,000 barrels a day of oil in 2013, making it the 39th biggest producer, according to the U.S. Energy Information Administration.
Output peaked at more than 440,000 barrels a day in 2001, the Energy Department’s statistical arm said on its website.
“Yemen is not an oil producer of great significance but it is located geographically and politically in a very important part of the Middle East,” said Ric Spooner, a chief strategist at CMC Markets in Sydney.
Yemen is located on Bab el-Mandeb, the fourth-biggest shipping chokepoint in the world by volume, which is 18 miles wide at its narrowest point, according to the EIA. It’s located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea.
In 2013, 3.8 million barrels a day of oil and petroleum products flowed through Bab el-Mandeb, EIA data shows. More than half of the shipments moved to the Suez Canal and SUMED Pipeline, which serve as the link between Egypt’s ports of Ain Sukhna on the Red Sea and Sidi Kerir on the Mediterranean.
Closure of the waterway may keep tankers from the Persian Gulf from reaching the Suez Canal and the SUMED Pipeline, diverting them around the southern tip of Africa, adding to transit time and cost, according to the EIA. Ships carrying oil from Europe and North Africa won’t be able to take the most direct route to Asian markets if Bab el-Mandeb is shut, the EIA said on its website.
“As the situation in Yemen has dramatically escalated, it’s seen primarily as a threat to international shipping and oil transport,” Theodore Karasik, an independent geopolitical analyst, said from Dubai. “There’s concern that the more ungovernable Yemen becomes, the more it could become a base for piracy in the Red Sea area.”
Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Kuwait responded to a request from Yemen’s President Abdurabuh Mansur Hadi, according to a statement carried by the official Saudi Press Agency.
The strikes are a “very dangerous development” and contradict international law, al-Jazeera reported, citing the Iranian foreign ministry. The attacks will haunt Saudi Arabia as the war won’t be contained in one area, Fars News Agency cited Alaeddin Boroujerdi, head of the Iranian parliament’s national security and foreign policy committee, as saying.
Saudi Arabia led OPEC’s decision in November to resist calls to reduce its output target of 30 million barrels a day, a resolution that Iranian Oil Minister Bijan Namdar Zanganeh said was “not in line with what we wanted.” OPEC’s decision, combined with the highest rate of U.S. production in more than 30 years, caused a supply glut that drove benchmark oil prices to six-year lows.
In Yemen, Iran and Saudi Arabia are “fighting a proxy war and they will continue to fight a proxy war,” Vautrain said.