Crude oil prices hit two-week highs after BP announced it would temporarily divert its tankers away from the Red Sea due to intensifying Yemeni Houthi attacks on vessels in the area.
Here, for example, is the performance of Brent oil over the past week:
Brent gained 1.8 percent on Monday and earlier today reached $78 a barrel.
West Texas Intermediate rose above $72 per barrel:
Despite stabilizing prices today, potential risks from supply disruptions and unrest in the Middle East could bring significant volatility to oil markets,” Tina Teng, an analyst at CMC Markets, told Reuters.
BP announced on Monday that it would discontinue oil and gas shipments through the Red Sea: “In light of the deteriorating security situation for shipping in the Red Sea, BP has decided to temporarily suspend all transits through the Red Sea” and added that “we will maintain this precautionary pause under constant review as circumstances evolve in the region.”
The move prompted an immediate response from the United States, which announced the formation of a coalition to step up patrols in the area, gaining the support of half a dozen NATO members, including the United Kingdom and France, and Gulf ally Bahrain.
The Red Sea is a key route for global oil shipments, leading to the Suez Canal and handling about 8 percent of global oil trade, Bloomberg noted in a report. It is the shortest trade route between Asia and Europe.
The report quotes an energy industry analyst as saying that the main thing to watch now is whether the attacks will escalate further. “The broader concerns are whether the Houthi bombings and blockade will increase tensions in the Middle East and whether Iran will enter the fray,” said John Driscoll, founder and director of JTD Energy Services.
Iran has warned that an increased Western marine presence in the region would be a mistake, according to a Reuters report today.
At the same time, however, the organization of fleets in the Red Sea should be able to restore calm to the area in a fairly short time.