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Will Oil’s Upward Trend Hold?

Will Oil’s Upward Trend Hold?

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Irina Slav

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Saudi Arabia Halts Oil Shipments At Key Chokepoint

Saudi Arabia halted crude oil and oil product shipments via the Bab el Mandeb chokepoint in the Red Sea after a Houthi attack on two Saudi tankers near the port of Hodeidah yesterday.

Reuters quoted Saudi Oil Minister Khalid al-Falih as saying “Saudi Arabia is temporarily halting all oil shipments through Bab al-Mandeb Strait immediately until the situation becomes clearer and the maritime transit through Bab al-Mandeb is safe.”

Initial reports of the attacks only mentioned one tanker targeted by the Houthis, but later it became clear that two Very Large Crude Carriers had been targeted, one of which sustained minor damage.

Following the announcement, oil prices continued their climb that started earlier this week on reports from the American Petroleum Institute and the Energy Information Administration about falling crude oil and gasoline inventories.

The Bab el Mandeb strait is the route that most crude oil shipments through the Suez Canal take to reach international markets, with a daily throughput of some 4.8 million bpd of crude and oil products as of 2016. The strait is between the northeastern African coast and Yemen, and while in the past pirates from North Africa were the biggest threat for vessels there, now the Houthi-Saudi conflict has added substantial risks for maritime transport in the region.

Related: The Regulation That Could Push Oil To $200

The conflict, widely seen as a proxy war between Iran, which supports the Houthi militia, and Saudi Arabia, has escalated in recent months with a series of missile exchanges and a humanitarian crisis in Yemen that has turned into the worst one in recent history.

It has also naturally had an effect on the oil industry and international prices, with the Houthis early this year threatening to block Bab el Mandeb if the Saudi-led coalition forces tried to take the port of Hodeidah. The coalition nevertheless advanced on the port city and is currently fighting the Houthis for control over it.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh G Salameh on July 26 2018 said:
    This incident will not affect Saudi oil exports as a whole. Saudi Arabia could bypass the Strait of Bab al-Mandeb completely. More than 75% of Saudi oil exports go to the Asia-Pacific region. Moreover, Saudi Arabia could still export up to 4 mbd through an oil pipeline traversing the country from east to west at the port of Yanbu on the Red Sea originally built with Iraqi money to transport Iraqi crude during the Iran-Iraq war.

    The impact of this development on oil prices will not be significant adding $1-2 to a barrel of oil.

    Still. Saudi Arabia is well advised to cut its losses and reach a peaceful settlement with the Houthis. The war in Yemen is unwinnable and it is costing Saudi Arabia more than $72 bn a year let alone the misery, starvation and genocide of the Yemeni people. Moreover, reaching a peaceful settlement would ensure safety of shipping for oil tankers through the Strait of Bab al-Mandeb.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • David Howse on July 26 2018 said:
    Dr Mamdouh G Salameh's comment should be part of the article. I learned more from his comment than the article itself.
  • t t on July 28 2018 said:
    What a usual act from Houthis! it is shameful that they go for negotiations and they break their promise every time!
    It is like the coalition is dealing with bunch of children! I feel sorry for the Yemenis who are under the control of Houthis. I feel sorry for Yemen's lands which are destructed because of these selfish Houthis who don't know anything about the basics of policy, diplomacy, and international laws.

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