By: Economy Middle East

Oil prices extended their advance on Wednesday as renewed U.S. attacks on Iran, retaliatory strikes across the Gulf and threats to Saudi shipping in the Red Sea heightened concerns about further disruptions to global energy supplies.

Brent crude futures rose 1.42 percent to $92.30 per barrel at 9:00 a.m. UAE time. U.S. West Texas Intermediate crude climbed 1.34 percent to $85.47 per barrel.

Both benchmarks had settled at five-week highs on Tuesday after increasing approximately 2 percent. Brent closed at $91.01 per barrel, while WTI ended the previous session at $84.91.

The latest gains came after U.S. forces struck Iranian military targets for an 11th consecutive night. The continuing exchange of attacks has increased the risk of disruptions across the Strait of Hormuz, the Red Sea and other routes that carry oil from the Middle East to international markets.

Strikes intensify further

U.S. forces targeted sites in southern and western Iran during the previous round of attacks. Iran responded by striking American facilities in Bahrain, Kuwait and Jordan, widening the geographical reach of the conflict.

The U.S. military said it began its latest operations against Iran late on Tuesday in the United States, corresponding with early Wednesday in Iran. The attacks followed an announcement by the Kuwaiti army that its air defenses were intercepting Iranian drones.

Repeated strikes by both sides have weakened expectations that diplomatic mediation could quickly restore the ceasefire reached in June. The agreement began unraveling earlier in July amid disagreements over the administration of the Strait of Hormuz.

Markets are particularly sensitive to any military activity involving energy infrastructure, oil tankers, export terminals or maritime routes. Even when physical supplies remain available, security threats can increase insurance premiums, freight rates and journey times.

The latest escalation is occurring as Gulf producers rely increasingly on alternative export corridors to compensate for reduced traffic through Hormuz.

Red Sea threatens

Yemen’s Iran-aligned Houthi movement added another source of uncertainty by threatening vessels carrying Saudi oil through the Bab el-Mandeb Strait and announcing what it described as a naval blockade of Saudi Arabia.

The Bab el-Mandeb waterway, located at the southern entrance to the Red Sea, has become increasingly important for Saudi crude exports as traffic through the Strait of Hormuz has fallen sharply since the collapse of the US-Iran ceasefire.

Saudi Arabia has redirected substantial oil volumes through its East-West pipeline to the Red Sea port of Yanbu. From there, tankers can travel north through the Red Sea and the Suez Canal or south past Yemen toward markets in Asia.

Three tankers carrying Saudi crude for customers in China and India reversed direction in the Red Sea on Tuesday. Instead of continuing toward the Yemeni coastline and Bab el-Mandeb, the vessels turned toward the Suez Canal.

The reversals illustrated how security warnings can alter shipping patterns even before a widespread physical blockade occurs.

Voyages face delays

A vessel carrying Saudi crude from Yanbu to Asia would normally sail south through Bab el-Mandeb before entering the Arabian Sea. Turning north toward Suez could require the cargo to continue through the Mediterranean and take a substantially longer route around Africa to reach Asian customers.

Longer voyages reduce the availability of tankers by keeping vessels occupied for additional days. They also increase fuel use, charter costs and insurance expenses, potentially raising the delivered price of crude even if the underlying oil remains available.

The threat is particularly significant because the Red Sea became a central alternative to Hormuz during the conflict. Simultaneous restrictions affecting both corridors would leave Gulf exporters with fewer options for moving crude and refined products.

Black Sea disrupted

Supply uncertainty also increased outside the Middle East after the Caspian Pipeline Consortium stopped receiving crude from Kazakhstan.

The consortium suspended tanker loading operations on Monday following attacks on vessels at its Black Sea terminal. The attacks were blamed on Ukrainian drones, although Ukraine had not commented on the allegations at the time of the Reuters report.

The Caspian Pipeline Consortium route is the principal export channel for Kazakh crude. Oil travels through the pipeline to the Russian Black Sea coast before being loaded onto tankers for delivery to international buyers.

The disruption adds another layer of risk to a market already confronting instability around the Strait of Hormuz and Bab el-Mandeb.

Inventories send mixed signal

Industry inventory figures from the American Petroleum Institute provided a partial counterweight to the geopolitical concerns.

U.S. crude oil and distillate inventories increased during the previous week, according to market sources citing API data. Higher crude stocks can suggest that domestic supply is exceeding immediate refinery demand, while rising distillate inventories may ease pressure on diesel and heating oil markets.

Gasoline inventories declined, however, indicating stronger demand or lower supply for the motor fuel. The mixed figures came before the U.S. Energy Information Administration’s official weekly petroleum report.

Analysts had previously expected U.S. crude inventories to decline by approximately 500,000 barrels, which would have marked a second consecutive weekly draw. Differences between expectations and the official result could influence prices later in the session.

For now, traders are giving greater weight to the growing number of threats facing international supply routes. The market must assess not only how much crude is being produced, but whether it can be transported safely and economically to refiners.

global oil markets

Emergency stocks cushion

The International Energy Agency said emergency stock releases were continuing to provide significant relief to oil markets. Around 290 million barrels had been released by member countries from the 400 million barrels made available under the collective action announced on March 11. The IEA said its members still held more than one billion barrels in government-controlled emergency reserves.

The agency warned that there was no room for complacency as hostilities escalated and available commercial inventories continued to decline. It also noted that refinery activity and petroleum-product supplies had not recovered as quickly as crude deliveries, leaving diesel and gasoline markets tighter than the underlying crude market.

Alternative exports from Gulf producers, particularly Saudi Arabia and the UAE, have continued reaching global customers through routes outside Hormuz. Higher shipments from the United States, Brazil, Venezuela and Kazakhstan had also offset part of the Gulf supply loss, although the latest Black Sea disruption now threatens some of that additional Kazakh contribution.

China has helped stabilize the market by reducing crude imports by nearly 50 percent from pre-war levels, according to the IEA’s latest assessment.

Chokepoints remain critical

The Strait of Hormuz was already the world’s most important oil transit chokepoint before the current conflict. In 2022 and the first half of 2023, it carried more than one-quarter of globally traded seaborne oil, according to the U.S. Energy Information Administration.

Saudi Arabia accounted for approximately 5.5 million barrels per day, or 38 percent, of the crude oil and condensate transported through Hormuz in 2024. EIA data showed that the Kingdom moved more crude through the strait than any other producer.

Bab el-Mandeb provides access between the Red Sea and the Gulf of Aden. Oil flows through the waterway averaged approximately four million barrels per day during the first eight months of 2024, down from 8.7 million barrels per day in 2023 as earlier security threats prompted vessels to change routes. The EIA reported that those diversions increased voyage times and shipping costs.

The latest Houthi threat is therefore targeting a route that has already demonstrated its vulnerability to security disruptions.

Supply losses persist

The IEA previously described the decline in global production following the start of the conflict as the largest oil supply disruption in history. Global supply fell by 10.1 million barrels per day in March to 97 million barrels per day, according to its April Oil Market Report.

OPEC+ production declined by 9.4 million barrels per day during that month to 42.4 million, while non-OPEC+ supply fell by 770,000 barrels per day to 54.7 million.

Weaker consumption has prevented prices from rising as sharply as the supply losses alone might suggest. The EIA’s Short-Term Energy Outlook forecasts global oil demand will contract by an average of 1.2 million barrels per day in 2026, including a decline of 800,000 barrels per day in non-OECD economies.