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Page added on March 26, 2015

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Why Bombing the 39th Biggest Oil Producer Is Roiling the Market

Public Policy

While Yemen contributes less than 0.2 percent of global oil output, its location puts it near the center of world energy trade.

The nation shares a border with Saudi Arabia, the world’s biggest crude exporter, and sits on one side of a shipping chokepoint used by crude tankers heading West from the Persian Gulf. Global oil prices jumped more than 5 percent on Thursday after regional powers began bombing rebel targets in the country that produced less than Denmark in 2013.

Yemen’s government collapsed in the face of an offensive by rebels known as Houthis, prompting airstrikes led by Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries. The Gulf’s main Sunni Muslim power says the Houthis are tools of its Shiite rival Iran, another OPEC member, and has vowed to do what’s necessary to halt their advance.

“While thousands of barrels of oil from Yemen will not be noticed, millions from Saudi Arabia will matter,” said John Vautrain, who has more than 30 years of experience in the energy industry and is the head of Vautrain & Co., a consultant in Singapore. “Saudi Arabia has been concerned about unrest spreading from Yemen.”

Yemen produced about 133,000 barrels a day of oil in 2013, making it the 39th biggest producer, according to the U.S. Energy Information Administration. Output peaked at more than 440,000 barrels a day in 2001, the Energy Department’s statistical arm said on its website.

Shipping Chokepoint

Brent, the benchmark grade for more than half the world’s crude, gained as much as $3.30, or 5.8 percent, to $59.78 a barrel in electronic trading on the London-based ICE Futures Europe exchange on Thursday. West Texas Intermediate futures, the U.S. marker, jumped as much as 6.6 percent to $52.48 on the New York Mercantile Exchange.

“Yemen is not an oil producer of great significance but it is located geographically and politically in a very important part of the Middle East,” said Ric Spooner, a chief strategist at CMC Markets in Sydney.

Yemen is located on Bab el-Mandeb, the fourth-biggest shipping chokepoint in the world by volume, which is 18 miles wide at its narrowest point, according to the EIA. It’s located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea.

In 2013, 3.8 million barrels a day of oil and petroleum products flowed through Bab el-Mandeb, EIA data shows. More than half of the shipments moved to the Suez Canal and SUMED Pipeline, which serve as the link between Egypt’s ports of Ain Sukhna on the Red Sea and Sidi Kerir on the Mediterranean.

Transport Threat

Closure of the waterway may keep tankers from the Persian Gulf from reaching the Suez Canal and the SUMED Pipeline, diverting them around the southern tip of Africa, adding to transit time and cost, according to the EIA. Ships carrying oil from Europe and North Africa won’t be able to take the most direct route to Asian markets if Bab el-Mandeb is shut, the EIA said on its website.

“As the situation in Yemen has dramatically escalated, it’s seen primarily as a threat to international shipping and oil transport,” Theodore Karasik, an independent geopolitical analyst, said from Dubai. “There’s concern that the more ungovernable Yemen becomes, the more it could become a base for piracy in the Red Sea area.”

Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Kuwait responded to a request from Yemen’s President Abdurabuh Mansur Hadi, according to a statement carried by the official Saudi Press Agency.

The strikes are a “very dangerous development” and contradict international law, al-Jazeera reported, citing the Iranian foreign ministry. The attacks will haunt Saudi Arabia as the war won’t be contained in one area, Fars News Agency cited Alaeddin Boroujerdi, head of the Iranian parliament’s national security and foreign policy committee, as saying.

Proxy War

Saudi Arabia led OPEC’s decision in November to resist calls to reduce its output target of 30 million barrels a day, a resolution that Iranian Oil Minister Bijan Namdar Zanganeh said was “not in line with what we wanted.” OPEC’s decision, combined with the highest rate of U.S. production in more than 30 years, caused a supply glut that drove benchmark oil prices to six-year lows.

In Yemen, Iran and Saudi Arabia are “fighting a proxy war and they will continue to fight a proxy war,” Vautrain said.

The Houthis, who follow the Zaydi branch of Shiite Islam, say they operate independently of Iran and represent only their group’s interests.

bloomberg



7 Comments on "Why Bombing the 39th Biggest Oil Producer Is Roiling the Market"

  1. ghung on Thu, 26th Mar 2015 8:59 am 

    Meanwhile, to the north, Iranians and Iranian-backed militias are helping Iraq (and their Shiite militias) to drive IS from Tikrit (with the assistance of US air strikes). Things are getting a bit blurred in the region. I’m betting the House of Saud is beginning to feel cornered.

  2. Plantagenet on Thu, 26th Mar 2015 10:52 am 

    Obama’s policy of helping the Shia against the Sunni in iraq and Syria, and dropping US opposition to the Shia in Iraq getting nuclear weapons has made KSA very very nervous. The middle east is moving closer to a regional shia vs. sunni religious war, with shia vs sunni conflicts now occurring in Yemen, Iraq and Syria.

  3. Plantagenet on Thu, 26th Mar 2015 10:53 am 

    oops. Make that Shia in IRAN moving towards nuclear weapons.

    CHEERS!

  4. Dredd on Thu, 26th Mar 2015 11:34 am 

    “oil prices jumped more than 5 percent on Thursday after regional powers began bombing rebel targets” – Bloomberg Post

    Clue as to why warmongers are crudemongers.

    I wonder what the cost of fuel was on Germanwings Airbus A320, Flight 4U 9525?

    Wanna bet it was the same we are all paying (Inside Job and/or Conspiracy?)?

  5. BobInget on Thu, 26th Mar 2015 12:30 pm 

    Murder suicide on German Wings aside.

    This entire world is on suicide watch.
    When ever you see oil and coal consumption go higher, your kids just got that much closer.

    US Jet Fuel consumption was up 7.7% this week over this time last year.

    Few Americans could find Saudi Arabia with a oil sent trained dog, much less guess were ten million barrels per day come from.

    As I’ve been trying to tell youse guys for over a year, this entire scenario has been in the planning stages for longer.

    V.Putin’s dream of dominating oil markets
    is dead on schedule.

    Iran, Iraq, Venezuela, Russia will dominate
    oil exports for decades to come.

    Yesterday it was Iraq, day before South Sudan,
    before that, Syria and Libya, today, Yemen and Saudi Arabia. Before lunch another oil “rich”
    nation, Nigeria holds elections, then falls into chaos.

    The Nigerian Army trained only as ‘bag men’
    extorting bribes from oil thieves, couldn’t
    harm a tied up dog with side arms.
    President ‘Good Luck Jonathan’ has to hire South African mercenaries to do any actual fighting. If the Nigerian people vote him out
    he will use those same white mercenaries to
    kill his people.

  6. baptised on Thu, 26th Mar 2015 1:48 pm 

    Bob I have a nephew that just went into Army infantry. In his boot camp he say’s over half are Africans that got U.S. citizenship by joining the army. STRANGE?

  7. Keith_McClary on Thu, 26th Mar 2015 3:28 pm 

    What if the Saudi forces “melt” like the Iraqis?

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