Oil prices spike after Saudi halts shipments after attack

Oil prices rose to a 10-day high on Thursday after Saudi Arabia’s state-owned oil company announced it was temporarily halting crude shipments through a strategic Red Sea shipping lane after Yemen’s rebels attacked two tankers in the strait the previous day.

Futures for Brent crude, the international oil benchmark, hit $74.83 per barrel before falling back in later day trading to $73.99, up 6 cents.

The spike came after Saudi Aramco, the kingdom’s oil giant, said it was stopping all oil shipments through the Bab al-Mandeb Strait, raising supply concerns.

Saudi Arabia, the world’s largest oil exporter, typically transports its oil from fields clustered in the east of the country around the Arabian Peninsula, then north through the Bab al-Mandeb Strait, and through the Red Sea and Suez Canal before on to Europe through the Mediterranean.

It can bypass the strait by moving oil across the country by pipeline and then loading it on to tankers at the Red Sea port of Yanbu, though at reduced output.

Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics, said the Saudi move will likely force tankers on a longer trip around Africa.

“It should boost Med barrels, and could eventually raise Brent and other grades due to the higher requirement for volumes at sea,” he said in a statement.

Eastern Gulf nations like Kuwait, Qatar and the United Arab Emirates don’t have that option, however, and it was not immediately clear how they would react to the attack on the Saudi ships.

The Houthis, who are fighting a Saudi-led coalition backing Yemen’s internationally recognized government, attacked the 2-million-barrel capacity Saudi tankers on Wednesday, causing minimal damage to one.

The Bab al-Mandeb strait, which connects the Gulf of Aden to the Red Sea is only about 30 kilometers, or 20 miles, wide between Yemen and Djibouti, leaving ships more vulnerable as they pass through.

The United Arab Emirates’ minister of state for foreign affairs, Anwar Gargash, said on Twitter the attack showed the need to take back the key port of Hodeida.

“The targeted attack on the Saudi oil tankers in the Red Sea confirms the necessity to liberate Hodeida from Houthi militias,” said Gargash, whose country is part of the Saudi-led coalition.

“This systematic attack is a terrorist act which shows the nature and aggression of the Houthis.”

Saudi Aramco said on Thursday there were no injuries or spills and that shutting the route was a precautionary measure.

“In the interest of the safety of ships and their crews and to avoid the risk of oil spill, Saudi Aramco has temporarily halted all oil shipments through Bab al-Mandeb Strait with immediate effect,” it said. “The company is carefully assessing the situation and will take further action as prudence demands.”

The Bab al-Mandeb strait, which connects the Gulf of Aden to the Red Sea is only about 30 kilometers, or 20 miles, wide between Yemen and Djibouti, leaving ships more vulnerable as they pass through.

Following the attack, the Saudi coalition said the rebels “had almost caused an environmental disaster,” according to the state-run al-Ekhbariya TV channel.

Earlier, the rebel-run Al-Masirah TV said their “naval forces have targeted the Saudi Dammam battleship off the western coast.”

It later said the “battleship” was targeted using a missile and that the rebels attacked another boat belonging to the coalition.