Oil Market Braces for Price Shock as Middle East Tensions Escalate

The oil market is bracing for another potential price shock as tensions in the Middle East escalate. The recent Houthi missile and drone attacks on southern Saudi Arabia have set fires at energy facilities, wounded 73 people, and temporarily disrupted operations at sites linked to Saudi Aramco.

The attacks have put additional pressure on the Bab al-Mandeb chokepoint, a critical alternative route for oil shipments when the Strait of Hormuz is disrupted. The Strait has already seen severely impaired flows, averaging just 4.9 million barrels per day in the second quarter, down from 21.6 million in the final quarter of 2025.

Goldman Sachs analysts warn that shipping disruptions could drive oil prices up to $120 a barrel if attacks on Middle Eastern vessels escalate. While there are factors that could cushion the shock, including rising production outside OPEC and weaker demand, the market's downside risk has become more asymmetric.