Risk Premium Returns As Saudi Strikes Yemen Rebels, Iran Confrontation Widens

Global oil prices were jolted out of their recent stupor early on 26 March after Saudi Arabia announced the start of air strikes against Iranian-backed Houthi rebels in Yemen. Brent blend futures rose by 6% amid fears that the impoverished state of Yemen, which shares a long border with Saudi Arabia (see map), might become the latest arena for a wider Middle Eastern conflict that could draw regional rivals Iran and Saudi Arabia into a proxy war in the oil-rich Arabian Peninsula, home to 60% of global conventional oil reserves.

Prices eased after it became clear that there was no immediate threat to oil supplies through the Bab al-Mandib, the narrow strait that is one of the most important oil transit routes at the entrance to the Red Sea and an access point for shipping traffic to and from the Suez Canal. Brent Blend futures, which rose to within sight of $60/B, retreated slightly later on 26 March. However, Riyadh has said that the military campaign, which has received international backing from the US, the big European powers, Turkey and Pakistan to name a few, would continue until Yemen was liberated. Seven other Arab states are directly taking part in the military action – an unusually broad coalition.


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