The worsening crisis in Yemen has provided a stark reminder of the immediate impact geopolitical events can have on oil prices.
I was asked to provide my analysis on CNBC's "Closing Bell" on Thursday afternoon, and to discuss the impact the crisis will have on oil prices.
Because this crisis is already having a big impact on the price of crude…
Oil Jumps on Conflict Fears
By mid-morning on March 26, West Texas Intermediate (WTI) had risen over 6% in less than 18 hours. Meanwhile Brent was up more than 5%, and was showing signs that it might be accelerating.
Behind this dramatic jump in price was the initiation of Operation Decisive Storm – air strikes against Houthi rebels in Yemen by Saudi-led coalition forces.
As reported by Saudi-owned Al-Arabiya TV, the coalition includes aircraft from the United Arab Emirates, Bahrain, Kuwait, Qatar, Jordan, Morocco, and Sudan, while Egypt, Jordan, Sudan, and Pakistan were ready to take part in any ground offensive. As part of the offensive, the United States was providing "logistical and intelligence support."
Some of these airstrikes were directed at the Al Anad air base in southern Yemen's Lahij Governorate, which was captured by rebels last week. Until a few months ago, this was the base the U.S. used to launch counter-terrorism operations in the region, especially against ISIS in Iraq.
But how quickly things have changed since then…
As it stands, the immediate impact on oil trading routes has been minimal. Yemen is located at the southwestern tip of the Arabian Peninsula at the entrance to the Red Sea, and a short boat ride from the Horn of Africa (hardly a stable place itself these days).
Given its location, little direct oil traffic moves north from here. The primary Saudi East-West Petroline oil pipeline connects to Yanbu on the coast well north of Yemen. About 5 million barrels a day travel via that route.
As you can see, the Saudis do have an extensive border with Yemen, and they have been moving troops to points along the border over the past few days, leading to speculation that ground forces may be next. The Yemeni port of Aden is currently under siege, and the current president is either in hiding or has already left the country.
Following the Arab Spring two years ago, Abdu Rabbu Mansour Hadi took over the presidency from long-time strongman Ali Abdullah Saleh. Saleh has the support of the Houthis, and they now control most of the country's military, including the air force.
That makes the U.S. and regional response much more difficult. In fact, the situation has all the hallmarks of a bloodbath just waiting to happen.
This Could Get Much Worse
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.