Oil perks up as Saudi- Iran rivalry spills into Yemen
The Saudis and their allies spent the past four months orchestrating an oil- price decline, but in one belligerent move Riyadh pushed oil prices higher Thursday, by as much as six per cent at one stage.
Saudi Arabia and nine regional allies launched airstrikes on Yemen, their impoverished southern neighbour, in a bid to beat back Shiite Houthi militia forces that are determined to take over the country.
Ye men produced a mere 130,000- barrels per day ( bpd) last year, but oil markets have been fired up on fears that the conflict could escalate and hit Gulf oil facilities. Saudi Arabia and Kuwait said they have taken measures to strengthen security around their oil installations.
“Just because Saudi Arabia and others conducted airstrikes doesn’t mean the oil market becomes suddenly tight,” said Masak Sumetsu, manager of the energy team at Brokerage Newedge in Tokyo, told Reuters.
“But there will be repercussions. If Saudi’s oil facilities are attacked, the impact would be huge.”
More crucially, Yemen is located at Bab el- Mandab, a strategic 32- kilometre wide shipping corridor that connects to the Suez Canal and ships as much as 3.8 million bpd ( or four per cent of global production) to the United States, Europe and Asia.
“Closure of the two- mile strait would force tankers to sail around the southern tip of Africa to reach European, North American, and South American markets,” according to the U. S. Department of Energy. If the corridor is blocked, the alternative route via the Cape of Good Hope would raise tanker costs to $ 150,000 US from $ 45,000 US.
One of the Arab World’s poorest countries with poverty levels at 42 per cent, Yemen’s latest troubles can be traced back to a popular revolt that forced longtime president Ali Abdullah Saleh to hand over the reins to his deputy Abd Rabbuh Mansir Hadi in 2012. Despite efforts of reconciliation with the Houthis and other groups, Hadi reportedly fled the country on a boat this week as the group took over the capital and put a bounty on his head. Saleh, who once called governing Yemen “dancing on the head of snakes,” is seen as backing the Houthis.
“Yemen has 24 million people ( and) 12 million guns — secondhighest per capita globally — and sharp tribal differences, particularly between the North and South, who fought a bloody civil war in the ’ 90s,” said Emad Mostaque, analyst with London- based Ecstrat.
The Houthis are also waging war against al- Qaida Yemeni branch, a common enemy of the U. S., Saudi Arabia and Iran. But in an example of how crossed the regional wires are, the Houthis’ flag bears the slogan: “God is Great, Death to America, Death to Israel, Curse on the Jews, Victory to Islam.”
Saudi Arabia, fearing the Shiite group has the backing of Iran, has committed 100 warplanes and 150,000 soldiers to “Operation Decisive Storm”.
“We are determined to protect the legitimate government of Yemen,” Saudi ambassador Adel al-Jubeir told reporters in Washington on Thursday. “Having Yemen fail cannot be option for us or for our coalition partners.”
Mostaque says Yemen is not necessarily aligning with Iran, rather it’s the re- emergence of Saleh, “a snake charmer playing a number of sides to his advantage.”
Citigroup Global Markets Inc. says the Yemen conflict “reflects an increasingly bullish geopolitical backdrop” for crude oil, that includes separate, but politically disruptive developments in important oil producing countries Russia, Venezuela and Nigeria.
As Brent ended the day five per cent up to $ 59.19 US, the biggest market fear is that Yemen is yet another battleground in an everexpanding proxy conflict between Iran and Saudi Arabia.
“Saudi Arabia has announced a blockade could be in the works, while Iran has made a commitment to supply fuel to the Houthis via sea, potentially signalling a further flashpoint,” Citi analyst Seth Kleinman said in a note to clients.
Saudi Arabia is also frustrated that Washington is proceeding on a nuclear deal with Iran, which it believes will strengthen Tehran’s hand at a time when it is already enjoys considerable influence in Iraq, Syria and Lebanon.
David Anderson, a Barclays Capital Inc. analyst who visited Saudi Arabia and the United Arab Emirates in early March says that a “surprising amount” of the region’s oil players think Tehran will secure a deal with Western powers.
But there will be repercussions. If Saudi’s oil facilities are attacked, the impact would be huge.