Brent crude surged as much as 3.7% to $116.75 a barrel on Monday after Iran-backed Houthi militants fired missiles and drones at Israel over the weekend and Washington ordered thousands of additional troops to the Middle East, deepening supply fears in a market already reeling from five weeks of open conflict between the United States, Israel and Iran.
West Texas Intermediate broke above $100 a barrel, while Brent, already on course for a record monthly gain, extended a rally of roughly 60% since fighting began in March, as traders priced in the risk that the war could yet close both the Strait of Hormuz and the Bab al-Mandab chokepoints simultaneously.
Houthis open a second energy front
The Houthi movement, which effectively shut the Red Sea to most Western shipping following the outbreak of the Gaza war in 2023, said it would continue operations until attacks on Iran and its allied armed groups ceased. The group has not explicitly declared attacks on vessels transiting the southern Red Sea and the Bab al-Mandab strait, but analysts note it possesses the capability to do so.
Critically, Saudi Arabia’s Yanbu export terminal — which Riyadh has been using to ship crude to global markets precisely because the de facto closure of the Strait of Hormuz makes its Gulf loading points unusable — lies within Houthi missile range.
“The threat the Houthis pose to oil infrastructure and Red Sea exports is like stopping open-heart surgery that had successfully halted the full crisis caused by the Hormuz closure,” Mukesh Sahdev, CEO, Xanalysts
Harris Khurshid, chief investment officer at Karobar Capital in Chicago, described the Houthi escalation as adding “upside risk, particularly through shipping and Red Sea routes, but it remains closer to heightened volatility than a true supply shock, unless it extends to broader Gulf infrastructure or Hormuz flows.”
Hormuz: partial flows and competing claims
Iran has restricted the vast majority of maritime traffic through the Strait of Hormuz, which connects the Arabian Gulf to global markets, allowing only a limited number of vessels through. Tehran has moved to formalise that control, granting passage to a select few, including ships linked to Pakistan, Thailand and Malaysia.
US President Donald Trump told reporters aboard Air Force One on Sunday that Iran had ceded to most of the 15 demands Washington had transmitted to Tehran as conditions for ending the war, without specifying what concessions had been offered. Iran had previously rejected the framework publicly and submitted counter-terms that included preserving its sovereignty over the Strait of Hormuz.
Trump said at a cabinet meeting last week that Iran had allowed 10 tankers through Hormuz as a goodwill gesture, adding in his Financial Times interview that the number had since doubled. Pakistan’s Foreign Minister Ishaq Dar separately posted on X that Tehran had agreed to permit a further 20 vessels to transit the waterway.
Peace talks were also held over the weekend in Pakistan, though they produced no visible breakthrough, and diplomatic contacts from Washington the previous week have similarly failed to halt the fighting, which entered its fifth week with no signs of abating.
$200 scenario and backwardation signal acute near-term stress
Macquarie Group Ltd said last week that futures could reach $200 a barrel if the conflict persists through June and Hormuz remains blocked, a scenario the bank assigned a roughly 40% probability.
The Brent prompt spread has moved sharply into backwardation, a structure in which the nearest contract trades at a steep premium to the next, signalling acute near-term supply anxiety. The spread reached $7.58 a barrel on Monday, against a negligible differential before the outbreak of hostilities.
The Washington Post reported, citing US officials, that the Pentagon is preparing for weeks of ground operations inside Iran. Senior administration figures, including Secretary of State Marco Rubio, sought to play down the report. The Wall Street Journal additionally reported that Trump is weighing a military operation to extract uranium from Iran, an option that had been raised earlier in the month.
Fahmy: ‘a catastrophic shock is coming’
Randa Fahmy, a former US deputy assistant secretary of energy, warned in a Bloomberg Television interview that global oil markets are facing a major supply shock given the likelihood of prolonged conflict as Iran weaponises its control of the Strait of Hormuz.
“If Bab al-Mandab closes, we will have a problem — a big problem with supply. The crisis could continue for a long time,” Randa Fahmy, former US Deputy Assistant Secretary of Energy
Fahmy described Houthi entry into the conflict as “deeply concerning” and said it added further risk to global energy supplies through the potential seizure of Bab al-Mandab, a second critical chokepoint for energy flows. She noted that ship owners and the broader shipping industry face near-impossible decisions: “It is almost impossible for shipowners and the maritime sector to redraw these maps, they cannot suddenly change course.”
Aluminium and Russian oil benefit from the surge
The conflict’s economic fallout extended beyond crude. Emirates Global Aluminium suffered “significant” damage on Saturday from Iranian missile and drone strikes, while a facility belonging to Aluminium Bahrain was also attacked. London aluminium prices rose as much as 6% at Monday’s open.
Russian crude, meanwhile, reached its highest level in approximately four years as Moscow benefited from the global oil price rally driven by the Iran war. The Urals grade at western Russian ports averaged around $93.40 a barrel, well above the $59 a barrel baseline embedded in Russia’s current fiscal year budget.
