The Gulf conflict escalated over the weekend. Tankers were reported hit in the Strait of Hormuz, and the Houthis attacked Saudi Arabia’s Red Sea oil port of Yanbu, which has carried much of the oil that cannot go through Hormuz. Brent crude rose to nearly $117 a barrel.
Over the past few days the conflict around the Gulf has moved closer to the infrastructure the world’s oil supply depends on.
Iran’s Revolutionary Guards said on Saturday that two supertankers carrying more than 4.5 million barrels of crude struck naval mines in the southern Strait of Hormuz, leaving both disabled and abandoned by their crews. The claim has not been independently confirmed. Iran said the ships were using a route it does not recognise. A day earlier, Iran claimed seven tankers had been damaged in a single day. Reuters reported that attacks on ships in the strait reached a record in October.
At the same time, Yemen’s Iran-backed Houthis said they attacked targets across Saudi Arabia, including airports in Riyadh, Dammam and Najran, an air base at Khamis Mushait, a Saudi Aramco facility at Yanbu, the Petro Rabigh refinery, and pumping stations on Saudi Arabia’s East-West pipeline. Saudi air defences said they intercepted ballistic missiles aimed at Riyadh, Taif and Yanbu.
Why Yanbu matters
The targets are significant. With traffic through Hormuz heavily disrupted since February, Saudi Arabia has sent much of its crude exports through the East-West pipeline to Yanbu on the Red Sea coast, avoiding the strait entirely. Saudi Aramco said volumes on that pipeline have more than tripled. That route has become one of the world’s most important backup supply lines.
Attacks on the pipeline’s pumping stations and on Yanbu threaten that backup. If the route were seriously disrupted, the world would lose a large share of Gulf oil exports at once. That is why oil markets reacted so strongly. Brent crude settled at $116.91 a barrel on Friday, up 3.3% on the day, and is more than 70% higher than a year ago.
The US position
Washington is considering further escalation. President Trump told a rally in Florida on Friday that the US might carry out another round of strikes on Iran if no agreement is reached. Director of National Intelligence Jay Clayton warned on 23 October that US intelligence assessments show Iran is in the advanced stages of planning attacks on US targets in the region. The administration is also considering whether to provide air support to Saudi forces fighting the Houthis.
Diplomatic efforts continue. Foreign ministers from Saudi Arabia, Pakistan, Egypt and Turkey met counterparts from Britain, France and Germany to discuss Iran and Yemen. Britain called for a diplomatic solution on Hormuz. Iran’s president is due to attend a summit of gas-exporting countries in Moscow on 27 October.
There are wider effects too. Some flights between the UAE and Saudi Arabia have been suspended until 31 October, and an oil spill has reached UAE beaches as tanker attacks increase.
Why it matters
India is among the countries most exposed to this. It imports most of its crude, much of it from the Gulf. Each rise in oil prices increases India’s import bill, puts more pressure on the rupee, keeps inflation high and makes further RBI rate hikes more likely. It also adds to losses at state-run fuel retailers, which have not passed the full rise in crude costs on to consumers.
The next week matters. The US Federal Reserve meets on 28 October, and US midterm elections follow on 3 November, with reports that renewed strikes on Iran could come after the vote. Markets will be watching whether diplomacy holds the situation, or whether the conflict spreads further into the region’s oil infrastructure.
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