Houthi Blockade Risks Oil Market Stability
Oil prices declined on Friday as reports emerged that Pakistan is attempting to broker a return to U.S.-Iran nuclear negotiations, easing some concerns about Middle East tensions.
However, Standard Chartered warns that oil market risk has expanded from one strategic chokepoint to two, following the Houthi militant group's imposition of a targeted maritime blockade against Saudi Arabia.
The blockade threatens to block Saudi-linked vessels from transiting the vital Bab el-Mandeb Strait, which is used by around 7 million barrels per day of crude oil. The waterway is one of the world's most important oil chokepoints and disruptions here can ripple through the entire tanker market, causing war-risk insurance premiums to rise and freight rates to increase.
Standard Chartered estimates that loadings at Yanbu had climbed to approximately 4.5 million barrels per day as Riyadh redirected exports away from the Arabian Gulf. The attacks came after Saudi Arabia had already shifted roughly 70%-75% of its crude exports through the East-West pipeline to the Red Sea port of Yanbu.
European refiners are likely to be the most affected if the Bab el-Mandeb Strait is compromised, as it would delay shipments of diesel and jet fuel into Europe. This could force refiners to source incremental Atlantic Basin barrels from West Africa, the U.S or Brazil, marking a significant reshuffle in global trade flows.
Oil prices declined on Friday with Brent crude for September delivery falling 4.4% to trade at $96.36 per barrel and WTI crude for September delivery down 3.6% to change hands at $88.86/bbl.