Oil prices surged to their highest levels since May on Friday as the widening US-Iran conflict and a rapid Houthi advance in Yemen raised fears of a prolonged disruption to global crude supplies through the two strategic waterways of Hormuz and Bab al-Mandeb.
Brent crude was trading around $108.20 a barrel in early Friday trade, up about 60 cents, after jumping 6.34% on Thursday to settle at $107.63. US West Texas Intermediate (WTI) was around $103, up 56 cents, after gaining 6.69% in the previous session to settle at $102.48.
Thursday's rally pushed both benchmarks to their highest settlement levels since May 19, as traders priced in a growing risk that the war with Iran could result in a longer-lasting supply shock.
The latest escalation came as Iran-aligned Houthi forces seized Yemen's strategic Red Sea port of Mocha and advanced towards the Bab al-Mandeb Strait, with Yemeni military sources saying the group had also moved towards the strategically located Hanish Islands.
The development adds a second major threat to oil and shipping flows at a time when traffic through the Strait of Hormuz, the world's most important oil chokepoint, has already been severely disrupted by the US-Iran conflict.
The Bab al-Mandeb links the Red Sea with the Gulf of Aden and is a critical route for energy shipments between the Middle East and Europe. Mocha lies only about 80 km from the strait, increasing concerns that the Houthis could acquire greater leverage over shipping through the waterway.
The Houthis, who are backed by Iran but whose operational control Tehran denies, have also intensified attacks on Saudi Arabia. Their latest advance follows attacks on Saudi territory and a declaration of a blockade targeting Saudi shipping.
The group's humanitarian operations coordination centre said Red Sea navigation remained safe for all shipping companies except Saudi vessels, according to Reuters.
For oil markets, the concern is that the two developments could squeeze supply from opposite ends of the Arabian Peninsula.
While Hormuz is the principal route for Gulf oil exports, disruption at Bab al-Mandeb could complicate alternative routes and threaten Saudi oil shipments moving through the Red Sea. Analysts have warned that Houthi control of positions around the strait could give Iran and its allies additional leverage over global energy flows.
Trump sees no immediate end
The oil rally also came after US President Donald Trump said he expected the war with Iran to end immediately after the US midterm elections in November.
Trump said Iran was under increasing economic pressure and would not be able to sustain the conflict, but the comments offered little immediate reassurance to oil markets, with the fighting continuing into its seventh month.
Iran has meanwhile stepped up attacks around the Strait of Hormuz after the US military struck Iranian oil tankers, further reducing shipping activity through the waterway. Reuters reported that Iran attacked 10 ships near Hormuz after the US sank five Iranian oil tankers.
The result has been a sharp increase in the geopolitical risk premium embedded in crude prices, with physical oil markets showing even greater stress than futures markets.
Demand outlook adds another complication
The supply shock comes against a backdrop of an increasingly bullish medium-term demand outlook. OPEC expects global oil demand growth to accelerate dramatically in 2027, with consumption forecast to rise by around 2.36 million barrels per day, compared with only about 380,000 bpd this year.
The sharpest changes are expected in major Asian consuming markets.
Chinese oil demand is forecast to grow by only about 10,000 bpd in 2026, but OPEC expects growth of around 380,000 bpd in 2027, taking total Chinese consumption to about 17.28 million bpd.
India is expected to see an even stronger acceleration, with demand growth forecast at just 60,000 bpd this year, followed by an increase of around 400,000 bpd in 2027, taking consumption to about 6.11 million bpd.
OECD oil demand, meanwhile, is expected to contract by about 110,000 bpd in 2026 before returning to growth of roughly 430,000 bpd next year.
The contrasting demand outlook means that any prolonged supply disruption could have a much bigger impact on prices if global consumption begins accelerating at the same time.
