Key Takeaways:
Asia spot LNG prices climbed to a four-month high as Houthi attacks on Saudi oil tankers extended the Middle East conflict to a second major shipping chokepoint.
Asia spot liquefied natural gas prices rose for a fifth consecutive week to their highest in four months as Houthi attacks on Saudi oil tankers extended the Middle East conflict to the Bab el-Mandeb strait, threatening a second major energy chokepoint.
"The Houthi escalation effectively closes the Red Sea route for Saudi energy exports, forcing buyers to compete for cargoes that would otherwise flow through the Suez Canal," said John Evans, an analyst at PVM Oil Associates.
Brent crude futures settled above $100 a barrel on Thursday for the first time since May before retreating 3.96% to $96.70 on Friday. West Texas Intermediate fell 3.42% to $89.04. Both benchmarks remain on track for weekly gains of about 9.7% and 8%, respectively.
The Houthi blockade threatens Saudi Arabia's alternative export route through the Red Sea, which the kingdom has relied on since Iran effectively closed the Strait of Hormuz. Roughly 10% of global oil shipments and a significant portion of LNG trade traverse the Bab el-Mandeb, making it the second most important energy chokepoint after the Strait of Hormuz, which handles about 21% of global oil trade.
Two chokepoints under threat
The Houthi military announced on Monday it was imposing a naval blockade on Saudi Arabia, targeting vessels associated with the kingdom using the Bab el-Mandeb strait. At least five ships, including several laden with Saudi crude oil, made u-turns before reaching the strait on Tuesday, according to maritime tracking data. The Saudi military has vowed to keep the waterway open.
The escalation compounds an already severe disruption at the Strait of Hormuz, where Iran has blockaded the waterway through which one-fifth of the world's oil and LNG used to pass. Daily vessel transits through the strait have held steady at three per day over the past three days, preliminary ship-tracking data from Kpler showed. The U.S. military has redirected eight commercial vessels as part of its naval blockade on Iranian ports, CENTCOM said.
U.S. gas prices hit an average of $4 a gallon again this week, up from $3.14 a year ago, as the conflict enters its fourth month. Defense Secretary Pete Hegseth told lawmakers the war has cost about $37.5 billion so far, though sources familiar with the matter said the total could be far higher.
Supply risks and price outlook
Analysts at JPMorgan said in a note that each additional month of disruption to oil supply would add about $7 to $8 a barrel to Brent, lifting monthly average prices to around $114 a barrel if disruptions extend to three months. The bank's estimate underscores the compounding effect of simultaneous threats to both the Strait of Hormuz and the Bab el-Mandeb.
The U.S. military has conducted 11 consecutive nights of strikes on Iran, targeting missile and drone launch sites, air defenses and coastal surveillance systems. CENTCOM said the strikes are designed to degrade Iran's ability to threaten commercial shipping in the Strait of Hormuz. Iran has responded by targeting U.S. assets in Kuwait, Bahrain and Jordan, and attacking tankers in the waterway.
For Asian LNG buyers, the disruption comes at a particularly vulnerable time. With the Strait of Hormuz largely blocked and the Bab el-Mandeb now threatened, spot cargoes that would normally transit the Suez Canal are being rerouted or canceled, tightening supply just as seasonal cooling demand peaks across the region.
This article is for informational purposes only and does not constitute investment advice.
