Brent edges higher after Houthis declare maritime embargo on Saudi Arabia

The front-month ICE Brent contract has gained by $0.56/bbl on the day, to trade at $88.78/bbl at 09.00 GMT.

IMAGE: Oil pumpjack. Getty Images

Upward pressure:

Yemen’s Iran-backed Houthi militant group has declared a naval blockade on Saudi Arabia, escalating the US-Iran conflict directly to the Red Sea and pushing Brent’s price higher.

Riyadh is highly dependent on the route, transporting about 70% of its crude through the Red Sea port of Yanbu to circumvent the Strait of Hormuz.

“Since disruptions hit the Persian Gulf, the Saudis have increased exports from Yanbu in the Red Sea, shipping around 4.6m b/d [4.6 million b/d] of crude in June, up from around 1.3m b/d [1.3 million b/d] at the start of the year,” two analysts from ING Bank said.

The announcement comes shortly after Iran instructed the Houthis to prepare to close the Bab al-Mandeb Strait connecting the Red Sea to the Gulf of Aden.

“An effective blockade would prevent oil flows to Asia… vessels would have to take the much longer route through the Suez Canal and go around Africa,” ING Bank’s analysts added.

Downward pressure:

Reports about some efforts to ease the situation in the Middle East has put some downward pressure on Brent’s price today.

Mediators ​have proposed a 10-day ceasefire plan to ​de-escalate ​the US-Iran conflict, in a bid ​to ​ ‌revive ⁠the interim deal reached ​in June, ⁠Reuters reported citing a senior Iranian ​official.

The oil market is yet to see a meaningful easing of tensions, ING Bank’s analysts noted. “This won’t be an easy task. Large divisions remain between the US and Iran,” they added.

By Aparupa Mazumder

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