Risk of Simultaneous Blockade of the Strait of Hormuz and the Red Sea Raises Fears of Oil Prices Hitting $120

[Financial News, New York and Seoul = Lee Byung-chul, Park Jong-won] As the possibility grows that not only the Strait of Hormuz but also the Bab-el-Mandeb Strait in the Red Sea could be blocked, alarm bells are ringing in the global energy market. The Iran-linked Houthi rebels in Yemen have declared a maritime blockade against Saudi Arabia, raising the prospect that the Middle East's two major crude export routes could be cut off at the same time.
International oil prices are expected to rise to as much as $115 to $120 per barrel, while shipping costs and marine insurance premiums are also likely to jump sharply as vessels are forced to detour around the Cape of Good Hope. South Korea, Japan and other Asian countries are expected to suffer the heaviest blow.
The Houthi rebels had not carried out the threat as of the 20th local time, but there is growing concern that they could attack ships passing through the Bab-el-Mandeb Strait or try to block the route. The strait is a key maritime passage linking the Red Sea, the Gulf of Aden and the Suez Canal. If it is blocked, even crude oil that has been exported by bypassing the Strait of Hormuz would have difficulty reaching the global market.
Saudi Arabia has relied on a strategy of moving crude produced at eastern oil fields through the east-west pipeline to Yanbu Port on the Red Sea coast after Iran blocked the Strait of Hormuz. Crude exports through Yanbu Port have recently averaged 4 million barrels per day, more than four times higher than a year earlier. Oil traffic through the Bab-el-Mandeb Strait has also risen to 7.4 million barrels per day, or about 7% of global crude output. In effect, the Red Sea has served as an alternative export route to the Strait of Hormuz.
There are growing forecasts that international oil prices could top $100 per barrel in the short term. Brent crude for September delivery closed at $89.22 per barrel, up $1.12, or 1.27%, from the previous session. Oil prices have surged by about 20% so far this month. Some analysts say prices could once again move above $115 to $120 per barrel.
Noam Raydan, a senior researcher at The Washington Institute for Near East Policy, told The New York Times (NYT) that "Asia could suffer the biggest damage." That is because most crude oil and petroleum products shipped from Yanbu Port on the Red Sea coast are headed to refineries in India, Singapore, Japan, South Korea and China.
Meanwhile, the U.S. Department of State issued a travel advisory on the 20th for Americans staying around the world. It advised U.S. citizens in the Middle East to "prepare for flight cancellations and periodic airspace closures." It also warned that "U.S. diplomatic facilities outside the Middle East have also been targeted in the past."
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