Oil prices surged on Friday following airstrikes led by the US and the UK against Houthi rebels in Yemen. Brent crude saw a 4.3% increase, surpassing US$80 per barrel (A$119), although it later stabilised to US$78.29.
The military action, a response to attacks on shipping routes in the Red Sea, has sparked concerns over the disruption of essential fuel and goods flow. Market observers are assessing the potential for this regional conflict to expand, which could further disrupt supplies.
The situation in the Middle East has been tense since the October 7 Hamas-led attack on Israel. In response to recent events, the Houthis have intensified their maritime assaults, threatening continuous attacks until Israel ceases its activities in Gaza.
Involvement of Iran
The primary concern for oil markets is the potential direct involvement of Iran in this conflict, a development that could jeopardize a significant portion of the world’s oil supply, given the region's production capacity.
Last week, the Houthis executed their largest Red Sea shipping attack yet, defying the presence of US-led naval forces and provoking Washington's warnings of retaliation. Further aggravating the situation, Iran seized a tanker near Oman.
President Biden has not ruled out additional actions against the Houthis, emphasizing the need to safeguard international commerce and US interests.
Iran has criticized the US-UK airstrikes, with its foreign ministry warning of heightened regional insecurity and instability.
Brent crude's recent surge above its 50-day moving average, a key technical indicator, might trigger further trading activity. Vandana Hari, founder of Vanda Insights, anticipates continued price volatility, influenced by the conflicting forces of market fundamentals and Middle East risk factors.