Global oil prices hit $100 a barrel on July 23 after Iranian-backed Houthi forces announced attacks on two oil tankers from U.S. ally Saudi Arabia.
The price of benchmark Brent crude oil rose 6% following the Houthi offensive in the Red Sea. The strike raised market concerns that a second key oil shipping route in the Middle East could be shut down or restricted.
Yemen’s political and religious faction, the Houthis, announced a blockade of the Red Sea on July 20. The group controls the narrow waterway known as the Bab el-Mandeb Strait, one of the world’s most important oil shipping routes.
President Donald Trump said in a social post that the United States would punish Iran for any future Houthi attacks.
Gasoline prices generally rise and fall depending on crude oil prices. According to the Energy Information Administration, crude oil is the largest component of the retail price of gasoline.
Crude oil price trends in the past 30 days
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According to AAA, the current average price for regular unleaded gasoline is $4.09 a gallon. This is about 37% higher than the prewar price ($2.98 per gallon).
How important is the Bab el-Mandeb Strait?
The Bab el-Mandeb Strait connects the southern part of the Red Sea and has been used as an alternative route to the Strait of Hormuz, an important shipping route for oil and natural gas. Due to the war between the United States and Iran, shipping through the strait has been restricted.
Closing the Bab el-Mandeb Strait could trigger a new spike in oil prices, disrupting fuel supplies and straining the global economy, Reuters reported.
The Houthis said they attacked two Saudi oil tankers, the Enseria and the Laila. Saudi state media reported an attack and firing on Enseria, but the attack on Laila remains unconfirmed.
Iran had been pressuring the Houthis to close the Bab el-Mandeb Strait if the United States continued its attacks on Iran’s power infrastructure. According to Reuters, that would put two of the world’s most important energy arteries at risk.
A complete closure of the Bab el-Mandeb river would prevent most of Saudi Arabia’s oil exports from leaving the region, potentially reducing global oil supplies by 7% on top of the 10% reduction in oil inflows from the war in the region.
Chokepoints – narrow passageways along popular international shipping routes – are critical to global energy trade and security because large quantities of oil, other liquids and liquefied natural gas flow through them.
The simultaneous disruption of multiple transport routes, including energy, shipping and air cargo, is expected to increase global inflation and put major global economies at risk of stagflation. According to Oilprice.com, this is in addition to existing political and tariff disputes.
Source: USA TODAY Network reporting and research. Reuters
