Another attack by Ansarullah of Yemen has damaged three oil production facilities in Saudi Arabia. The ARAMCO refinery in Jizan, with a capacity of 400,000 barrel per day (bpd), went offline. Crude oil prices increased:
By 08:00 GMT, Brent crude futures had increased by $2, or 2.06%, reaching $99 per barrel (bbl), reported Reuters.
Meanwhile, US West Texas Intermediate (WTI) crude traded at $94.41/bbl, up $2.93, or 3.2%.
Earlier in the session, Brent touched $99.22/bbl, its strongest mark since 24 July, while WTI reached $94.60/bbl, a peak last seen on 8 June.
The Ansarullah government of Yemen, often called the Houthi after one of its main groups, controls only some 33% of the country but 80% of the Yemeni population. The Saudi are arming and sponsoring its local opposition. There is little chance that it could win in a fight against the Houthi.
The reduction of Saudi output may be the final straw that breaks the oil price’s back.
Despite the U.S./Israeli war on Iran, oil had so far not breached the psychological mark of $100 barrel. The use of national reserves and the reduction of Chinese oil imports had kept the price unnaturally low. The reserves however are low by now and Chinese importers are back in the markets. Thus the loss of crude production due to the Iranian blockade of the Strait of Hormuz is finally making itself felt.
Product prices of oil derivates had already risen a lot. Refinery owners have made record profits. U.S. consumers has to spend an extra $100 billion on energy.
U.S. President Donald Trump has finally acknowledged the problem. He admitted that his war he is waging on Iran is far from being won:
President Donald Trump on Monday claimed that oil prices will “drop precipitously” when the U.S. wins the ongoing war with Iran.
“Oil prices will drop precipitously, like everything else is dropping (but more!), when we WIN the war with Iran,” the president wrote in a post to social media. “Three Dollars a gallon, but ultimately, below Two Dollars a gallon. It will all happen quickly, and Iran will never have a Nuclear Weapon. MAGA!”
Oil traders do not see lower oil prices (archived):
Oil may rally to as much as $120 a barrel if attacks on shipping in the Middle East increase, according to Goldman Sachs Group Inc., which recommended bets on natural gas and diesel as a way to capture gains.
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The standoff after more than six months of war has boosted a wide array of energy prices, with gains in natural gas and petroleum products outpacing crude oil. Industrial fuel diesel has more than doubled this year.
Iran has announced that it will extend its control zone around Hormuz and intensify its measures against the U.S. blockade:
Iran has said it will step up efforts to tackle problems created by U.S. sanctions that are crippling its economy.
However, the U.S. campaign to throttle Iran’s economy by blockading its oil exports and stopping sanctions evasion is growing increasingly difficult to withstand, three senior Iranian sources have said.
Iran’s Parliament Speaker Mohammad Baqer Qalibaf said on Sunday that the U.S. should understand that the rules of the game have changed “before it is too late.”
“From now on, any attack against Iran’s interests and security will receive a faster, heavier and more painful response,” he said in a speech published on his Telegram channel.
The U.S. is hoping to strangle Iran’s economy. Iran however has planned for this. (archived):
The state of the economy is not yet impinging on Iran’s ability to wage war. Stockpiles of various goods remain deep, thanks to years of sanctions experience. And the Iranian state, with its powerful repressive tools, has figured out how to offload much of the economic pain onto ordinary Iranians while making sure its own needs are met. Trump’s approach, in other words, can certainly immiserate most of the country’s people. But it cannot successfully strangle the Islamic Republic itself.
There is a now a race between the economic damage Iran can cause to the U.S. via high oil prices and the economic trouble the U.S. is causing Iran by imposing a blockade of the country.
It is race which for now Iran, with the help of allies in Yemen and elsewhere, looks destined to win.