Two Straits: Trump's actions against Iran are driving up oil prices
US President Donald Trump this week promised to strengthen the military operation against the Yemeni Houthis, citing the need to ensure free navigation in the Bab-el-Mandeb Strait. A few days later, the United States tightened sanctions against Iran, extending them to some Chinese refineries. All this threatens a serious increase in oil prices, which has already begun even against the background of the expected increase in OPEC+ production. About how events are developing in the global oil market in connection with American military and political activity, see the Izvestia article.
Escalation in Yemen
The activity of the Ansar Allah movement (Houthis) against ships belonging to States supporting Israel in 2023-2024 has already led to a significant reduction in cargo traffic through the Red Sea, including oil. These actions, especially at first, were able to significantly affect oil prices, raising them by several dollars per barrel. The operation of the United States and its allies to punish the Houthis had no significant effect.
After the truce in Gaza, the Houthis stopped firing on ships. But the new escalation in Palestine provoked the Shiite group to resume hostilities against maritime transport. The American administration, in turn, decided to raise the stakes, threatening to "completely destroy" the Houthis. The conflict has escalated.
At the same time, the Americans have already imposed the fourth package of sanctions against Iran since Trump's arrival. They affected both mining enterprises in the Islamic Republic itself, as well as carriers, as well as buyers of Iranian oil. Among others, the Chinese refinery Shandong Shouguang Luqing Petrochemica l was on the list. In addition, the sanctions affected 12 organizations and eight vessels that are part of Iran's shadow tanker fleet that supply private refineries. These include Aurora Riley and Catalina, flying the flag of Panama, as well as Brava Lake, formally related to Barbados.
Iran has been gradually increasing its production and exports in recent years. The latter was about 1.8 million barrels per day in February. Of course, all these volumes will not disappear from the market at once due to sanctions. Nevertheless, the effect can be quite significant if the restrictions are met. At the same time, America has taken the path of gradually strengthening sanctions. For example, Chinese banks that service Sino-Iranian transactions were not affected. Such actions may provoke China into some form of response.
Oil workers will be able to adapt
According to Evgenia Popova, project manager at Implementation, the escalation of tensions between the Yemeni Houthis and the United States may significantly affect oil prices in the short and medium term, primarily due to investors' expectations of a further escalation of the conflict in the paper oil market.
— The Bab-el-Mandeb Strait accounts for about 12% of the world trade in oil and petroleum products. Also, there have already been cases in world practice of reviewing the format of using this strait, when individual countries reduced or redirected supplies. For example, Saudi Arabia in 2018. In the long term, oil—producing states will be able to adapt by rearranging flows, but this will lead to an increase in logistics costs.
She added that most of the Russian oil supplies to Asia actually pass through this strait. And the need to redirect flows can lead to a decrease in supply efficiency.
Blocking the strait is unprofitable for Iran
Lyudmila Rokotyanskaya, an expert on the stock market at BCS World Investments, notes that about 3 million barrels per day used to be transported through the Bab-el-Mandeb Strait.
— Last year, when the Houthis began attacking ships, at first it caused a shock in the oil market — a large number of tankers were redirected along a longer route bypassing Africa. While the cargo was at sea, prices were high, but as the ships were unloaded and adapted to the new logistics route, oil prices stabilized, and then completely stopped responding to new attacks from the Houthis," the source explained.
She considers the situation around the Strait of Hormuz, which connects the Persian Gulf, where key global oil producers are concentrated, with the Indian Ocean, to be much more serious.
According to her, 26% of the world's oil trade passes through the Strait of Hormuz. There are also LNG flows from Qatar, Saudi Arabia is heavily dependent on the Strait of Hormuz.
— Every time it comes to Iran's potential involvement in an expanded Middle East conflict, the risks of shipping in the Strait of Hormuz are discussed. Some experts believe that Iran may start attacking ships at the specified location. Others are still inclined to believe that this scenario is unlikely, since the closure of the Strait of Hormuz is unprofitable for Iran itself, and the US military forces in the region can provide opposition, Rokotyanskaya comments.
She noted that in general, Iran is one of the largest oil suppliers in the world, so the black gold market is always closely following the events around this country.
— Now it is not entirely clear whether the measures taken will be able to reduce the desire of Chinese buyers to circumvent US sanctions. But if the pressure turns out to be effective, it may be negative for Russian oil too," the expert pointed out.
Coordination of military actions is underway
Nikolay Dudchenko, an analyst at Finam Financial Group, states that the escalation of the conflict in the Middle East is already positively affecting oil prices. Over the current week, the price of Brent crude oil on the spot market increased by more than 1.5% and reached $72.5 per barrel at the moment.
It is reported that Trump has sent a letter to Iran demanding a new nuclear deal within two months. Meanwhile, it is said that the United States is already coordinating at the highest level possible military actions against the Islamic Republic, the expert notes. If Iran gets involved in a direct armed conflict, it could push prices up quite a lot.
— Iran is the largest oil producer with production of about 3.3 million bpd, according to the latest OPEC data, which accounts for about 3% of global demand for black gold. Iran also has the ability to block the Strait of Hormuz, through which, according to the US Department of Energy, over 20 million barrels of oil (about 20% of global demand) and about one fifth of LNG flow," Dudchenko concluded.
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