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Oil Prices Surge as US, UK Strike Houthi Rebels in Yemen

Escalating conflict in the Middle East disrupts Red Sea shipping, stoking fears of a wider conflict and higher global inflation.

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AKROTIRI, CYPRUS - JANUARY 12: In this handout image provided by the UK Ministry of Defence, an RAF Typhoon aircraft returns to berth following a strike mission on Yemen's Houthi rebels at RAF Akrotiri on January 12, 2024 in Akrotiri, Cyprus. On Thursday evening, four RAF Typhoons launched from RAF Akrotiri to conduct strikes against Yemen's Houthi rebels, who have been targeting merchant vessels in the Red Sea and Gulf of Aden with missiles and drones. According to British Prime Minister Rishi Sunak, the strikes were done to protect global shipping in the region. (Photo by MoD Crown Copyright via Getty Images)

Overview

  • US and UK forces launched strikes against Iran-backed Houthi rebels in Yemen, causing oil prices to surge by 4% due to concerns about a wider conflict in the crude-rich region.
  • The Houthi rebels have been carrying out attacks on ships in the Red Sea, a key international shipping route, affecting trade flows and putting upward pressure on global inflation.
  • If the allied attacks fail to destroy Houthi weapons, and oil tankers need to reroute around Africa, up to 80 million barrels of oil could be locked in transit, potentially causing prices to rise by $5-10 per barrel.
  • The rise in oil prices has sparked concerns about a fresh spike in inflation that could complicate central bank efforts to cut interest rates.
  • Shipping companies remain wary of sending their vessels through the Red Sea due to security reasons, which could further disrupt trade and impact oil prices.