Oil & Water: Why Violence In Yemen Boosted Oil Prices (Investor's Business Daily)

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  • March 26, 2015
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By ALAN R. ELLIOTT   INVESTOR’S BUSINESS DAILY
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Oil prices and energy stocks soared Thursday after Saudi Arabia launched an air war against rebel-held Yemen. The country, a bit larger than California, shares its northern border with Saudi Arabia. The remainder of Yemen is coastal. Much of the southern portion has been described as lush and green, the “breadbasket of Arabia,” according to the Lonely Planet travel guide.
Many Americans had never heard of the country before al-Qaida-linked suicide bombers caught the U.S.S. Cole off guard and nearly destroyed it in October 2000. The attack took place in the harbor at Aden, a battered former British colony near Yemen’s southwestern tip.
That tip oversees the 20-mile wide Bab-el-Mandeb Strait. While Yemen is only a minor oil producer, the Bab-el-Mandeb is a choke point for tankers hauling Persian Gulf oil toward the Suez Canal. The Energy Information Administration reports that an average 3.8 million barrels per day of oil passed through the strait in 2013.
Despite Yemen’s strategic position, oil prices have shown little or no reaction as Zaidi Shiite rebels known as Houthis gained strength in recent months. They seized the capital, Sanaa, in September. In February they forced U.S.-backed President Abd-Rabbu Mansour Hadi to flee to Aden.
Hadi requested help from the Saudis as the Houthis threatened Aden, according to the BBC. The Saudis responded with a coalition including Jordan, Egypt, Pakistan, Morocco and Sudan.
Saudi air raids hammered rebel sites in Sanaa on Thursday. The U.S. reportedly provided intelligence and targeting assistance. Four Egyptian naval vessels were expected to arrive late Thursday, according to the Washington Post. Hadi reportedly fled the country on Thursday.
Concerns that Iran could become involved and broaden the war helped drive oil higher.
U.S. benchmark oil prices spiked up nearly 7% before settling up a bit less than 5% at 51.43 per barrel. That is 12% above last Friday’s close. Europe’s Brent crude rose 5% to $59.32.
Oil-related industry groups dominated the market in early trade. But their gains faded as trading wore on. Only a few oil groups, including U.S. producers and royalty trusts, ended within the top 10 gains among industries for the day.