Oil Surges Amid Growing Fears Over Global Supplies

SadaNews - Oil prices rose as Iran-backed Houthis in Yemen entered the war in the Middle East and with additional U.S. forces arriving in the region, heightening fears of escalation and threatening further disruption in energy markets.

Brent crude, heading for record monthly gains, rose by as much as 3.7% to $116.75 a barrel after the Houthis fired missiles and drones at Israel over the weekend.

The group stated that it would continue its operations until the attacks on Iran and its affiliated armed groups cease. West Texas Intermediate crude jumped above $100 a barrel.

Washington Deploys Thousands of Troops to the Region

The United States ordered thousands of troops to the region, fueling fears of a risky ground invasion.

In an interview with the Financial Times on Sunday, U.S. President Donald Trump stated that he wants to "take over the oil in Iran" and might control the export center on Kharg Island, a move that could provoke a significant retaliatory response from Tehran. Earlier this month, the U.S. targeted military sites on the island.

Brent crude surged nearly 60% during March, as global markets faced turmoil due to the war between the U.S., Israel, and Iran, raising concerns about simultaneous inflation increases and growth slowdown.

The conflict has entered its fifth week, showing no signs of abating, despite Washington's diplomatic efforts last week and separate peace talks held over the weekend in Pakistan.

Strait of Hormuz at the Heart of the Conflict

Trump told reporters aboard Air Force One on Sunday that Iran has "offered" the U.S. most of the 15 demands sent to Tehran to end the war, without specifying what concessions were made.

Iran had publicly rejected the plan earlier and presented counter-conditions, including maintaining sovereignty over the Strait of Hormuz.

Iran has restricted most traffic through the Strait of Hormuz, which links the Arabian Gulf to global markets, leaving only a limited portion of movement.

Tehran has moved to formalize its control over this corridor by preventing most ships from passing, allowing only a limited number, including vessels linked to Pakistan, Thailand, and Malaysia.

Last week, Trump stated during a Cabinet meeting that Iran allowed 10 oil tankers to pass through Hormuz as a goodwill gesture.

He added to the Financial Times that this number has doubled, while Pakistani Foreign Minister Ishaq Dar separately stated on the "X" platform that Tehran agreed to allow an additional 20 ships to pass through the strait.

New Risks from the Red Sea

The entry of the Houthis poses a new danger to oil markets, as the group has successfully closed the Red Sea to most Western shipping companies since the outbreak of the Gaza War in 2023, forcing ships to change their routes. Any threat to shipments loaded through the Saudi port of Yanbu will increase restrictions on global supplies.

Mukesh Sahdev, CEO of "X Analysts", stated that "the threat posed by the Houthis to oil infrastructure and exports through the Red Sea outlet resembles stopping a successful open-heart surgery that halted the full crisis resulting from the closure of the Strait of Hormuz."

Although the group has not announced targeting vessels crossing the southern Red Sea and Bab el-Mandeb strait, it has the capacity to do so. The Saudi port of Yanbu, which the kingdom uses to export crude to bypass the effective closure of the Strait of Hormuz due to the war, is also within the range of Houthi missiles.

Harris Khurshid, Chief Investment Officer at "Karobar Capital" in Chicago, noted that "the Houthis’ actions add upside risks, especially through shipping and Red Sea routes, but remain closer to increasing volatility than a real supply shock, unless extended to a broader infrastructure in the Gulf or Hormuz flows."

Price Scenarios

Banks hurried to calculate how the war and prices could develop. Last week, Macquarie Group Ltd stated that futures could reach $200 a barrel if the conflict continues until June and the Strait of Hormuz remains closed, in a scenario estimated to have about a 40% probability.

The prompt spread for Brent crude indicates acute concerns over near-term supplies, within an upward "backwardation" pattern, as the nearer-dated contract trades at a significant premium compared to the next contract. The spread was $7.58 per barrel on Monday, compared to a slight spread before the outbreak of war.

The Washington Post cited U.S. officials that the U.S. War Department is preparing for weeks of ground operations in Iran.

But senior officials in the administration, including Secretary of State Marco Rubio, downplayed the significance of this step. The Wall Street Journal also reported that Trump is considering a military operation to extract uranium from Iran, an option raised earlier this month.

The conflict's impact has extended to other sectors. Over the weekend, "Emirates Global Aluminum" suffered "significant" damage from an Iranian missile and drone attack on Saturday. One facility belonging to "Aluminum Bahrain" was also attacked. Prices surged in London by up to 6% at Monday's opening.