Americans woke up to higher gas prices on Tuesday, and some experts are warning that the global oil shock could be about to get worse with the entry of Yemen’s Houthi rebels into the Iran war.
On Tuesday morning, the average gas price in the U.S. was US$4.018 per gallon, according to AAA, which tracks gas prices nationally.
According to CAA, which tracks gas prices in Canada, the average price Canadians paid at the pumps was $1.72 per litre – up almost 40 cents compared with last month.
The risk of an expanded Iran war grew on Saturday as Yemen’s Iran-aligned Houthis launched their first attacks on Israel since the start of the conflict, even as additional U.S. forces reached the Middle East.
Israel’s military said it intercepted two drones launched from Yemen on Monday, two days after Iran-aligned Houthis fired missiles at Israel for the first time since the start of the war.
The Houthis have yet to target shipping in the Red Sea, which handles about 15 per cent of global maritime traffic — but if they do, the impact could be significant, experts say.
If the Houthis attack shipping and shut down the southern entrance to the Red Sea, it could drive prices up by US$5 to US$10 per barrel, according to Robert Yawger, director of energy futures at Mizuho.
Iran’s effective closure of the Strait of Hormuz, a choke point for roughly a fifth of global oil and gas supplies, has sent oil prices up about 57 per cent this month, the steepest monthly jump in LSEG data going back to 1988, exceeding gains made during the 1990 Gulf War.
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U.S. crude, meanwhile, has climbed by 53 per cent for its biggest monthly gain since May 2020.
“We saw the Houthis were involved a couple days ago in striking Israel. But to cut off the Red Sea as a secondary strait, where a large chunk of the world’s oil goes through, would be an economic catastrophe,” said Kevin Budning, director of scientific research at the CDA Institute.
In the past, the Houthis have attempted to block commercial shipping traffic in the Bab el-Mandeb Strait – a crucial shipping lane in the Red Sea.
The Bab el-Mandeb Strait connects the Gulf of Aden with the Red Sea, representing a key shipping link between Europe and Asia. As of 2023, the strait accounted for 12 per cent of all of the world’s seaborne oil trade and eight per cent of the total liquefied natural gas (LNG) trade, according to the U.S. Energy Information Administration.
“Vessels that do not pass through the Suez Canal via the Bab el-Mandeb Strait and Red Sea can go around southern Africa via the Cape of Good Hope, but that route can add significant time to the voyage, depending on the ship’s origin and its destination,” the U.S. EIA says.
Typically, it takes an oil tanker 19 days to get from the Persian Gulf to Europe’s Amsterdam-Rotterdam-Antwerp petroleum trading hub via the Suez Canal, the agency says. If the same oil tanker sails via the Cape of Good Hope, the same journey would take 35 days.
With the Strait of Hormuz under strain, major oil exporters in the region had already been pivoting to the Red Sea for their shipments.
Saudi Arabia’s crude oil loadings at its Yanbu port on the Red Sea are set to surge to a record 3.8 million barrels per day in March, shipping data showed last week, after the U.S.-Israeli war on Iran effectively shut exports via the Strait of Hormuz.
Three more months of war in Iran could cause Brent crude oil prices to skyrocket, soaring past US$200 a barrel, a report by global asset management firm Macquire Group Ltd. warned last week. This would translate to a price of $US7 per gallon at the pumps, it added.
— with files from Reuters
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