President Joe Biden announced that strikes had been successful against a number of Iranian-backed targets, including radar stations and missile launchers. Global benchmark Brent crude surged 2.5% to nearly $79 per barrel as investors sought to determine whether the strikes would trigger a larger crisis in the Middle East.
Despite the presence of a US-led naval force, the Houthis began their most aggressive assault on shipping in the Red Sea earlier this week. This provoked warnings of retaliation from Washington. Iran also seized a ship off the coast of Oman on Thursday, escalating the situation.
The US-led strikes reflect an increase in Middle East tensions, which have been increasing since Hamas’ attack on Israel in early October. The Houthis have been launching missiles at ships virtually every day for the past two months, and they have pledged not to stop until Israel ceases its attack on Gaza.
The main risk to prices is that Iran is brought directly into the conflict, which may disrupt supply and flows in a region that supplies roughly one-third of the world’s crude. This reintroduces a war-risk premium into the market, which had been declining due to increased non-OPEC+ supply and decreasing demand growth.
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