Saudi Arabian jets struck Houthi positions in Yemen on March 26, which Iran called a “dangerous step,” adding a layer of risk to global oil markets, pushing crude prices up.
Riyadh announced it was leading military operations, dubbed Decisive Storm, with its Arab allies “in order to defend the legitimate government in Yemen and prevent the Houthi militias from controlling the country by force”. Saudi rival Iran, which backs the Houthi rebels, denounced the air strikes.
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Russian President Vladimir Putin, in a phone conversation with his Iranian counterpart, called for an “immediate ceasefire”.
The Houthi militia, a Shiite group, has in recent weeks put pressure on the administration of President Abd Rabbuh Mansur Hadi. US forces are providing assistance to their Saudi counterparts against the Houthi movement.
Last year, the Houthi uprising escalated in Yemen, prompting Norwegian energy company DNO International to declare force majeure in November.
The recent conflict adds a new level of concern in the oil-rich Middle East. Yemen is a small oil producer, London-based independent consultant Manouchehr Takin told New Europe on March 26. But there are concerns that this conflict may spread, he added.
“The price went up because people thought this escalation might expand and go further and affect the Saudi production. But I doubt it because it is away from the Saudi Arabia’s oil fields,” Takin said. He added that it is unlikely that Iran will get actively involved. “I don’t think this conflict will cause a disruption of the other oil activities in the region,” he said.
There are also regional security concerns about maritime traffic through key ports in the region. Arab producers have to ship their crude past the Yemen coastline via the Gulf of Aden to get to the Suez Canal, a key passageway to Europe. But Takin said he doesn’t think tensions in Yemen will result in destruction of offshore transportation.
However, investors are jumpy. “These are all the possibilities that the market thinks psychologically as soon as these news comes the price goes up,” Takin said.
The cost of a barrel of benchmark Brent crude rose more than 4% on March 26, to $58.93. A barrel of US West Texas intermediate jumped $2.17, to $51.37. Buoyed by rising oil prices, the ruble gained 1.5% against the dollar on March 26, reaching 56.08, the best performance since December 2014.
Meanwhile, Iraqi troops reportedly started the final phase of an offensive to recapture Saddam Hussein’s hometown of Tikrit on March 26, just hours after the US launched airstrikes on the Islamic State-held city.
Iraq’s Oil Minister Adel Abdel Mehdi played down the impact of the emerging conflict in Yemen on oil prices, predicting they will reach $70 by the end of the year. “Of course political issues such as the crisis in Yemen can give some push to the ascending line of prices, but it will have temporary effect,” Reuters quoted him as saying. Iraq currently exports 2.9 million barrels per day of oil, and Abdel Mehdi said the average for March was on track to hit 3 million barrels per day.
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