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Red Sea Houthi Attacks Impact Oil Prices

How are the Red Sea Houthi attacks affecting oil prices?

The Red Sea Houthi attacks have had a significant impact on global oil prices and the energy market as a whole. The ongoing conflict in the region has led to disruptions in oil shipments and posed challenges to major shipping companies. The implications of these attacks have been felt across the global supply chain, leading to rising oil prices and potential rerouting of shipments.

The attacks have put pressure on major shipping companies such as BP and Maersk, impacting their operations and raising concerns about the safety of their vessels in the Red Sea. The situation has prompted a reassessment of their shipping routes and security measures.

If we use the price of $90 a barrel of September and early October, then oil prices have risen about 8 percent since mid-December. Crude is now in the mid 70s. Given the OPEC meeting and the rising geopolitical risk, oil in our view weak. The US along with some other producers are pumping out more oil and combined with weakening demand due to slowing economic growth oil has reacted but not to a significant extent.

The involvement of Iran-backed Houthi rebels in the Red Sea attacks has raised geopolitical implications, with concerns about the broader regional dynamics and the potential for further escalation of conflicts that could have far-reaching consequences for oil prices and global stability.

Efforts are being made to implement enhanced security measures for ships passing through the Red Sea, aiming to minimize the risks posed by the Houthi attacks and ensure the safety of vessels and crew members navigating the region.

Thus, getting China involved in the patrols in the Red Sea could put pressure on the Houthi rebels through Chinese economic influence on Iran. Also, the interests of China are aligned with the US and west since many ships with finished products going to Europe travel throught the Red Sea and Suez Channel to get to Europe.

Aside from inceasing patrols and a presense in the Red Sea by the US, UK and other allies, military options exist to strike the infrastructure of Houthi rebels in Yemen. This decision has implications of risking a broader conflict in the Middle East.

There are several constraints to US military action against the Houthi rebels in Yemen. Close allies such as Saudi Arabia and the UAE are in negotiations with the Houthi’s to finalize a peace deal. The attacks by the Houthis could be due to strategic calculations to increase their power in these negotiations. In addition, an attack on the Houthis risks increasing attacks on US troops in Iraq by Iranian backed groups. If the US then increaes the level of response against these groups in Iran, it could destabalize the current ruling coalition in Iraq against US interests.

In short, the decision to escalate against the Houthis is fraught with creating other problems in the Middle East and the US will try to use its influence in the area to calm things down. We should also not forget that the Houthis are overeaching in this case and have not thought this through clearly plus that they have their own interests seperately from the Iranians. These are factors that may result in failing to reign them in and if military strikes by the US on Yemen result, expect oil prices to jump a lot more.