Oil prices rise as US, UK hit Houthi targets in Yemen

Oil prices are rising after the US and UK carried out air and missile strikes against Houthi militants' targets in Yemen, with Ice Brent opening the day 2pc higher.

Front-month Ice Brent March contract was at $79.17/bl at 03:56 GMT, up by 2.3pc from the previous settlement. The rise matched the front-month February WTI crude contract, which was up by 2.4pc to $73.78/bl.

The US and UK carried out the attacks in the early hours of 12 January Yemen time, with support from Australia, Bahrain, Canada and the Netherlands, US President Joe Biden said. "These strikes are in direct response to unprecedented Houthi attacks against international maritime vessels in the Red Sea, including the use of anti-ship ballistic missiles for the first time in history," Biden said. "I will not hesitate to direct further measures to protect our people and the free flow of international commerce as necessary."

The military action targeted Houthi radars and missile and drone launching sites, a senior US administration official said.

The Iranian-backed Houthis fired an anti-ship ballistic missile from Houthi-controlled areas in Yemen into international shipping lanes in the Gulf of Aden on 11 January at around 2am Sanaa time (23:00 GMT), the US Central Command said. There were no injuries or damage.

Saudi Arabia has responded to the strikes in Yemen, calling for restraint. "While the kingdom stresses the importance of preserving the security and stability of the Red Sea region, in which freedom of navigation is an international demand because it harms the interests of the entire world, it calls for restraint and avoiding escalation in light of the events the region is witnessing," the foreign ministry said on 12 January as quoted by state news agency SPA.

The US-led retaliatory action follows a warning by Washington and its allies on 3 January for the Houthis to stop targeting commercial ships or face an escalation in military response. The Houthi militants disregarded the warning and on 9 January carried out their most sophisticated attack yet, targeting a US warship in the Red Sea. The Houthi militants have launched 27 attacks since November targeting commercial ships and US naval vessels in the Red Sea and the Bab el-Mandeb strait, most recently on 11 January.

Rising risks

Oil prices could rise further if the Houthis or any other Iran-backed group respond to the US and UK strikes.

Security risks to regional shipping are not limited to the Red Sea. Iran on 11 January seized an oil tanker off the coast of Oman. But the US is less likely to resort to force against Iran, since the two countries have avoided direct military confrontation in the Middle East.

The US holds Iran responsible for the Houthi attacks because Tehran has provided information, intelligence and weapon capabilities to enable the Yemeni militants, the senior US administration official said.

The Houthi attacks have affected flows of multiple commodities and forced major shipping firms to indefinitely suspend all transits through the Red Sea. Crude tankers have continued to head through the Red Sea but freight rates are volatile, reflecting escalating tensions and higher insurance costs.

By Reena Nathan