Houthi Control of Red Sea Sends Oil Prices Soaring to Record Highs

The escalating conflict in Yemen has sent oil prices soaring to record highs as Houthi rebels gain control of strategic areas around the Bab el-Mandeb Strait, a critical chokepoint for global crude flows. The strait, which connects the Red Sea and the Indian Ocean, is now under Houthi control, with the group seizing key islands and ports in recent days.

According to the U.S. Energy Information Administration, the Bab el-Mandeb Strait averages 9.3 million barrels a day of crude flows, about 12% of global total oil exports. The disruption has caused Brent crude futures for November delivery to settle at $108.75 a barrel on the ICE Futures Exchange in London, up 2.90%, while West Texas Intermediate (WTI) futures for October delivery closed at $105.83 a barrel, up 4.38%.

The surge in oil prices has also pushed U.S. Treasury yields higher, with the 10-year yield reaching as high as 5.041%, its highest since July 2007. The Federal Reserve's Federal Open Market Committee is currently meeting to discuss monetary policy, and traders are pricing in a 94.5% chance of a 0.25 percentage point rate hike.

The Houthi rebels have been advancing on key areas around the Bab el-Mandeb Strait for weeks, with the group capturing Mocha, a major port on the Red Sea coast, on October 10th. The Houthis also took Perim Island, a strategic chokepoint in the strait, and Yemeni government forces withdrew from the island on October 10th.

The Saudi government has notified some European customers that crude cargo deliveries scheduled for late this month have been canceled due to the ongoing conflict. WTI's gain of 4.38% outpaced Brent's 2.90%, largely because U.S. crude has emerged as a substitute for European refiners.