- The US and the UK launched airstrikes against the Houthi rebels in Yemen Thursday.
- Oil prices spiked 3% as traders fretted about escalating tensions in the Middle East.
- The West’s retaliation is likely to drive up market volatility, analysts warned.
The US, the UK, and other allies launched airstrikes against the Iran-linked Houthi rebels in Yemen Thursday – and Wall Street is fretting that the Western coalition’s move could drive up oil prices over the coming months.
Crude benchmarks jumped in early-morning trading, and analysts warned there could be further rallies ahead as anxieties about the Middle East build and the market grapples with the OPEC+ cartel’s production cuts.
The US is trying to deter the Houthis from attacking international shipping lanes in the Red Sea, which have driven up container costs and disrupted the trade of goods between Asia and the West.
Here’s how the airstrikes could impact markets and the global economy.
Oil prices jump
Two key oil-price gauges, Brent and West Texas Intermediate, climbed moe than 3% Friday as traders digested how the US’s retaliation against the Houthis could impact commodity markets.
Investors have been nervously eyeing crude since Hamas attacked Israel on October 7, although signs of slowing global demand have dragged on prices since then.
If Friday’s rally holds up until the closing bell, it’ll be the first time since mid-November that Brent and WTI have jumped more than 4% in a single day, according to data from Dow Jones.
Rising oil benchmarks can make it drive up the price of gas and other crude-related products – so big swings can impact US inflation, which has cooled off over the past year but came in at a higher-than-expected rate of 3.4% Thursday.
Energy stocks also jumped in premarket trading, with WEC Energy, Halliburton, and Occidental Petroleum all climbing 2% ahead of the opening bell.
Volatility warnings
Analysts warned that oil-market volatility is likely to rise in the wake of the US’s attacks on Houthi ships.
“Air strikes on Houthi targets in Yemen have increased [traders’] anxiety,” Hargreaves Lansdown’s Sophie Lund-Yates said. “The oil price is looking to end the week little changed, but the risk of volatility has increased significantly.”
That being said, factors beyond the Middle East are also affecting crude. Saudi Arabia and Russia have pressed ahead with aggressive production cuts in recent months in a bid to prop up prices, which crashed over the final quarter of 2023 due to a perceived slowdown in global demand.
Giovani Staunovo, a commodity strategist at UBS, said in a research note Friday that the bank expects Brent to hold at its current level of over $80 a barrel – but added that “any risk premium will only sustain if there are disruptions to oil supply.”
The US’s strikes could have more of an outsized impact on global trade. Major shipping companies, including Maersk and MSC, have diverted their vessels away from the Suez Canal due to the Houthis’ presence in the Red Sea, and Thursday’s development could further disrupt international trade, according to supply-chain experts.
“Yesterday’s military action from the US and UK has shown that this is not an issue that will go away quietly,” Proxima’s Matthias Menck said in emailed comments.
“The longer this continues, the more disruption we can expect for businesses and consumers,” he added. “The business community will be watching closely to see whether it triggers an escalation and potentially worsens the outlook for international trade.”
