The price of oil has again crossed the $100 per barrel mark amid the new escalation of the conflict in the Middle East. What factors affect prices and what else can we expect?
Oil prices have again reached $100 per barrel. Experts warn that the blockade of the Red Sea, which the Houthis announced, could lead to even greater price increases and prices could again reach $ 120 per barrel, as in April.
The Suez Canal is a key trade route
The prices, which were reported on July 23, are about 1/3 higher than when markets calmed down last month after the United States and Iran agreed to a temporary ceasefire, which, however, never actually took effect. They still remain lower than in April, when a peak of $ 126 per barrel was reached.
The Strait of Hormuz remains closed, and the threat of the Iranian-backed Houthis in Yemen to block the passage of ships through the Bab el-Mandeb Strait creates additional risks. The Houthis announced on July 22 that they had attacked two Saudi oil tankers and threatened to continue to block the passage through the Red Sea. According to the United Nations, between 12 and 15 percent of all global trade passes through the Suez Canal.
The Red Sea route has become a valve that has allowed Saudi Arabia and the United Arab Emirates to continue to partially export their oil outside the Persian Gulf.
If the Bal El Mandab and Hormuz remain closed
For the 12th consecutive night, the United States has launched massive strikes against Iran, targeting missile and drone storage facilities, as well as air defense systems that it says Tehran uses to attack ships in the Persian Gulf, as well as facilities in neighboring countries. Iran has shown no willingness to back down.
According to experts, the Bab el-Mandeb Strait, which connects the Red Sea to the Gulf of Aden, is extremely vulnerable to a Houthi blockade. About 2.5 million barrels of Saudi oil a day were passing through it before the Yemeni rebels began their attacks, said Jorge Leon of Norwegian energy research company Rystad Energy. Saudi Arabia and the UAE transport about 6.8 million barrels a day through the Red Sea, half the capacity of the Strait of Hormuz. Saudi Arabia also uses pipelines through Egypt to export oil through one of the African country's ports.
Leon said that recently the oil market has been "increasingly dependent" on the Red Sea route and if both routes - through Bab el-Mandeb and the Strait of Hormuz - remain inaccessible, this would mean "a significant increase in oil prices". Even before the Houthi attacks began, "Goldman Sachs" warned that oil prices could rise to $120 a barrel in the fourth quarter of the year if the Strait of Hormuz remains closed.
Consumer fuel prices are already rising
Gasoline prices in the United States have reached $4.09 a gallon. "They're probably going to go lower than they did at the beginning. Just give me some time," President Donald Trump said at a rally in Georgia.
Meanwhile, in Germany, the price has reached nearly 2.15 euros per liter, the ADAC automobile club reported, up 33 cents from its lowest price in June. Diesel prices have risen to €2.18 per litre, up from €1.73 a month ago.
If the blockade of the two key sea lanes continues, companies will have to use a longer route through South Africa, extending travel times by up to four weeks and making it significantly more expensive. The price will be paid by consumers and businesses.
Can other countries counter?
In the early days of the war, the US and other countries released millions of barrels of oil from their strategic reserves to control rising prices. But such a move would be much more costly now, with depleted reserves, analysts say.
The US, the world's largest oil exporter, has increased global supplies during the war. According to the country's energy administration, they reached 5.6 million barrels per day in April.
Meanwhile, China, the world's largest oil importer, cut its purchases to levels close to their lowest in a decade in the early months of the war. The reasons are lower demand and huge reserves. With large commercial stocks depleted, some analysts expect Beijing to increase imports in the second half of the year, which would put further pressure on prices.