Global oil prices surged past $100 a barrel this week amid renewed tensions in the Middle East, fueled by increasing hostilities involving Yemen’s Houthi militia and disruptions to key maritime oil routes. The escalation, which has raised concerns over energy supply security, threatens to drive prices even higher, with analysts warning of potential spikes to $120 or more per barrel.

The recent surge follows an attack by the Iranian-aligned Houthis on two Saudi oil tankers, the Encelia and Layla, in the Red Sea. The Houthis claimed responsibility for these strikes, involving ballistic and cruise missiles alongside drone assaults, asserting the vessels had violated a naval blockade they imposed in the region. One of the tankers was reported ablaze. The Bab al-Mandab strait, a critical shipping passage between the Arabian Peninsula and the Horn of Africa, carries roughly 4.1 million barrels of crude and refined products daily, accounting for about 5% of global oil shipments.

Saudi Arabia has rerouted a significant portion of its oil exports—about 75%—through this maritime route by channeling oil from its Abqaiq processing facility to the Yanbu terminal on the west coast, increasing the strategic importance of Bab al-Mandab as an alternative to the increasingly contested Strait of Hormuz. Since the US-Israeli attacks on Iran in February initiated a de facto blockade of the Strait of Hormuz, oil exports have shifted to this southern passage. However, the current Houthi threats and attacks have introduced new vulnerabilities, prompting several Saudi-linked tankers to turn back or change course.

The disruption to these choke points exacerbates a wider crisis as tensions between the US and Iran have intensified following the collapse of their ceasefire. Although Washington maintains the Strait of Hormuz remains open, transit volumes have slowed sharply, limiting its function as a safe export route. A senior Houthi official warned that continued enforcement of their blockade could propel oil prices to $200 a barrel, signaling a potentially sharp shock to global markets.

Market observers note that although oil prices briefly fell below $71 in early July amid hopes for de-escalation, renewed hostilities and breakdown of diplomatic accords have reversed that trend. The benchmark Brent crude price has climbed more than 13% in recent days and is on track for its largest monthly gain since the Hormuz crisis began earlier this year.

In addition to crude oil, refined fuel supplies are under pressure. The head of the International Energy Agency, Fatih Birol, indicated that refinery output worldwide, especially for transport fuels like diesel and gasoline, has lagged behind crude delivery levels due to the elevated cost of raw oil. This dynamic has tightened markets for refined products even as crude prices surged, contributing to higher fuel prices in several countries. For instance, in the United Kingdom, diesel prices have risen by nearly 5% over the past two weeks, reversing a recent downward trend.

The renewed instability has also impacted financial markets. Government bond yields in major economies such as the US, Germany, Japan, and the UK increased amid fears that rising energy costs could reignite inflation, while stock markets experienced losses due partly to geopolitical concerns and broader economic anxieties, including instability in technology-sector valuations.

Shipping companies face difficult decisions regarding transit routes. Avoiding Bab al-Mandab requires rerouting vessels around Africa’s Cape of Good Hope, almost doubling travel distance and adding substantial costs—estimated at $2 million to $2.5 million per trip—leading some shipowners to continue riskier passages despite threats. Analysts warn that a prolonged disruption at either Bab al-Mandab or Hormuz could significantly restrict global crude supplies and fuel further price volatility.

The crisis has drawn attention to the fragility of global energy infrastructure and dependence on fossil fuels. Environmental groups emphasize that ongoing conflicts and blockade risks highlight the dangers of reliance on concentrated energy corridors. Meanwhile, as winter approaches in the Northern Hemisphere, tightening gas supplies—partially offset by increased exports from North America—remain a concern for energy security.

Saudi Arabia has condemned the Houthi attacks as violations of international law and acts of maritime piracy, pledging a firm military response to any threats against shipping in the Red Sea. The evolving situation underscores the broader geopolitical complexities within the Gulf region and their far-reaching impacts on global energy markets and economies.