After US and UK airstrikes against Houthi rebels in Yemen, tensions in the Middle East erupted, pushing oil prices to a scorching $80 per barrel on Friday—a record high for 2024. In addition to posing a threat to energy security, this explosive combination of geopolitical concerns and limited global supplies also imperils consumer wallets and company plans around the globe.
Joint military strikes by the US and UK against Iran-backed Houthi insurgents in Yemen heightened anxiety about potential disruptions to oil supplies from the Red Sea, a crucial shipping route for Middle Eastern crude. These concerns, even if temporary, were enough to send jitters through the market, pushing up prices on fears of potential supply bottlenecks.
“These targeted strikes are a clear message that the United States and our partners will not tolerate attacks on our personnel or allow hostile actors to imperil freedom of navigation in one of the world’s most critical commercial routes,” U.S. President Joe Biden said in a statement.
“The chance of dragging multiple oil producing countries into the conflict is definitely higher today than it was yesterday. And it was higher yesterday than the day before,” said Robert Yawger, vice president of energy futures at Mizuho Securities.
Higher oil prices have a ripple effect on the broader economy. Gasoline prices, already on the rise, are likely to continue climbing, putting a strain on consumer wallets. Businesses reliant on transportation and fuel-intensive operations will also face higher costs, potentially impacting their bottom lines.
The bulk of the Houthi strikes have occurred in the Bab al-Mandab Strait, a 20-mile-wide maritime corridor at the southern edge of the Red maritime between Djbouti and Yemen, which is traversed by any ship or oil tanker traveling through the Suez Canal to or from the Indian Ocean.
Another worry is that the Houthis may launch a reprisal attack against Saudi Arabian oil facilities. In 2019, a major drone strike on Saudi oil infrastructure momentarily disrupted almost 5% of the world’s oil supplies.
“Once you start hitting facilities on land in Yemen, that is taking things to the next level,” Yawger said.
Governments face the unenviable task of navigating this turbulent landscape. While ensuring energy security and protecting domestic industries are paramount, finding ways to mitigate the pain inflicted on consumers by high prices is equally crucial. Potential measures could include strategic reserve releases, tax cuts, and targeted economic support.