Oil Price Surges Five Percent in the Wake of Yemen Conflict

Investors are nervous as Saudi Arabia and other Gulf nations commence air strikes in Yemen to combat Houthi rebels. Many fear the battle could affect crude supplies going forward.

Investors are nervous as Saudi Arabia and other Gulf nations commence air strikes in Yemen to combat Houthi rebels. Many fear the battle could affect crude supplies going forward.

The Brent crude gain marks the fastest daily headway in a month, speeding to $60 a barrel, the fastest since February 26. However, the concern is premature because the Yemeni situation has not affected operations in the Gulf States. The Saudis stated there is no immediate need to deploy ground troops, ordering extra security to safeguard oil facilities and the Saudi border. Other nations are getting involved, with Iran condemning the air campaign, and Russia has called for a ceasefire.

Pakistan also vowed to respond if Saudi interests are threatened. Michael Cohen, a Barclay’s analyst, believes the Yemen turmoil could have implications in other war-ravaged nations such as Libya, Iraq and Syria.

The World Watches Yemen

Neighboring countries and investors are watching Yemen closely. The Houthi rebels drove out Yemen’s president from the capital of Sanaa, and the country is on the verge of becoming a failed state. But the Gulf States and the rest of the world are not worried about Yemen itself because the state is not a major oil producer. The Saudis in particular are concerned because their suppliers must cross the Gulf of Aden, a Yemeni coastline, to reach the Suez Canal, which is a major route to Europe.

But the Egyptians have been watching the Suez like a hawk in the past few years, so there is no immediate worry of instability in the Suez territory. The real area in question is the Bab el-Mandeb strait, which sits between Djibouti, Yemen and the Horn of Africa. In fact, the U.S. Energy Information Administration dubbed this region a key point for global oil shipments, and it is a major source of international commerce. A closure of this area would also make it harder for North African oil producers to reach Asia.

Yemen: Hype or Real Threat?

Analysts speculate that the Yemen crisis is morphing into a full-blown proxy war between the Shia-backed rebels, supported by Iran, and the Sunni nations of the Gulf. Nevertheless, others attribute the gain in oil to losses in March and concern about a supply glut on the market. For now, many attribute the increase to a simple kneejerk reaction, and analysts note that the conflict will not cause a disruption in oil supplies.