Brent crude has crossed the psychologically important $100-a-barrel mark once again. But its unlike the previous oil rally. This surge is being powered by something more dangerous -- the simultaneous threat to two of the world's most important energy chokepoints. The Strait of Hormuz was already under severe disruption due to the US-Iran conflict. Now Yemen's Houthis have opened a second front by targeting Saudi oil tankers in the Red Sea and threatening shipping through Bab el-Mandeb.
For oil traders, policymakers and central bankers, the question is no longer whether the Middle East crisis will affect energy markets but how much worse it can get. Analysts have started saying oil at $120 - and even $150 -- is in sight.
The road to $100
Brent crossed $100 a barrel on Thursday after Houthi forces claimed attacks on two Saudi oil tankers in the Red Sea. The move marked the first return to triple-digit oil prices since late May and capped a sharp rally that has added roughly 40% to crude prices since the start of the current conflict cycle.
The immediate trigger was not the attack itself but what it threatens. For weeks, traders had been focused on the Strait of Hormuz, where Iranian control and military activity have severely disrupted shipping. Many market participants assumed that Saudi Arabia and some Gulf producers could partially mitigate the damage by rerouting exports through alternative infrastructure.
That assumption has now been challenged. The Houthis have effectively targeted the very route that Saudi Arabia was relying upon to bypass Hormuz. As a result, the market suddenly faces the possibility that both major Gulf export corridors could become unreliable at the same time.
That explains why the oil market's reaction was so violent. “This is the perfect hurricane for the market,” Arne Rasmussen, chief analyst at Global Risk Management told Financial Times. “You have an escalation in the rhetoric from both sides [in the Iran war] and now the Red Sea attacks. The market was probably caught on the short side. Everything is moving in the wrong direction.”
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Why Bab el-Mandeb matters so much
For years, the Strait of Hormuz has been regarded as the world's most important oil chokepoint. Before the war, roughly one-fifth of global oil and gas flows passed through it. Bab el-Mandeb, the narrow passage connecting the Red Sea to the Gulf of Aden, has generally attracted less attention. Yet it remains one of the world's most critical maritime corridors. According to multiple energy and shipping estimates, around 13% of global crude shipments transit the waterway. It also serves as a crucial link between Asia, the Middle East and Europe.
What makes the current situation especially dangerous is that Bab el-Mandeb has become far more important since Hormuz came under disruption. Saudi Arabia's East-West Pipeline, originally built during the Iran-Iraq War, transports crude from the kingdom's oil heartland to the Red Sea port of Yanbu. That infrastructure allowed Riyadh to bypass Hormuz and continue exports even as tensions escalated in the Gulf.
However, oil loaded at Yanbu still has to move through maritime routes. For cargoes headed towards Asia, Bab el-Mandeb becomes a critical link. If that route becomes unsafe or prohibitively expensive because of missile attacks, drone strikes and soaring insurance costs, the value of the bypass pipeline diminishes dramatically. In simple terms, Saudi Arabia found a way around Hormuz but the Houthis are now threatening that workaround.
The nightmare scenario: Two oil chokepoints
The biggest fear haunting oil markets is no longer the closure of a single shipping route. It is the prospect of simultaneous disruption across Hormuz and Bab el-Mandeb. Energy analysts have long warned that global oil logistics depend heavily on a handful of maritime bottlenecks. Usually, when one route faces disruption, producers can redirect cargoes elsewhere. But when two chokepoints come under pressure together, flexibility evaporates.
That is precisely what appears to be unfolding. Iranian actions have already reduced Gulf shipping flows substantially. Meanwhile, Houthi threats have reportedly forced several Saudi tankers to alter routes and caused a sharp drop in crude loadings through Bab el-Mandeb over recent weeks.
The result is not necessarily an immediate loss of oil production. The barrels still exist. The problem is getting them to customers. Oil markets are often less concerned about supply underground than about supply reaching refineries. When shipping routes become uncertain, prices can spike rapidly because buyers start bidding for guaranteed deliveries.
Saudi Arabia is suddenly at the centre of the oil crisis
Among Gulf producers, Saudi Arabia was initially viewed as one of the best-positioned countries to withstand Hormuz disruption. Countries such as Kuwait, Qatar, Bahrain and Iraq remain heavily dependent on the Gulf route. Oman sits outside Hormuz and enjoys some insulation. Saudi Arabia appeared to have the strongest alternative because of its East-West pipeline network.
The Houthi attacks have exposed a weakness in that strategy. Yanbu's importance has grown enormously during the crisis, with a large share of Saudi exports being rerouted there. If tankers leaving the Red Sea now face missile threats, drone attacks or an effective maritime blockade, Saudi Arabia's export flexibility shrinks sharply. That explains why markets reacted so aggressively to the attacks on Saudi vessels rather than treating them as isolated incidents. The strikes were viewed as attacks on a key artery of global energy supply.
Could Brent really hit $120?
A week ago, $120 looked like a tail-risk scenario. Today, it is being discussed by major investment banks. Goldman Sachs warned earlier this week that Brent could climb above $120 during the fourth quarter if disruptions in the Strait of Hormuz persist. The bank stressed that this was not its base case, which still assumes eventual de-escalation. Yet it also noted that risks remain skewed to the upside because of shipping disruptions and falling inventories.
Oil prices tend to react most violently when supply disruptions occur alongside low stockpiles. Inventories act as a shock absorber. When they are depleted, the market becomes far more sensitive to geopolitical events. That is exactly the environment today.
Global inventories have been declining. Diesel markets were already tight before the current escalation. Russian diesel exports have been constrained and Ukrainian attacks on Russian refining infrastructure have further tightened supplies. Under these conditions, even modest disruptions can trigger disproportionate price moves.
Why some analysts are talking about $150
A move to $120 is increasingly plausible if current disruptions persist. But some analysts are contemplating far more extreme outcomes. Analysts at RBC Capital Markets argue that oil prices remain a "lagging indicator" of geopolitical risk in the region. Their assessment is that a full-scale regional conflict involving broader maritime disruption could push prices towards $150 a barrel.
Such forecasts are not predictions. They represent stress scenarios. But they reveal how dramatically perceptions have shifted over the past two weeks. Markets are no longer debating whether the conflict affects energy flows. They are debating how severe the disruption could become.
The inflation threat returns
The return of $100 oil creates headaches far beyond the energy sector. Central banks had been hoping that the worst of the inflation shock was behind them. Instead, higher crude prices are threatening a fresh round of cost pressures.
In the US, gasoline prices have already climbed above $4 a gallon. Diesel prices have surged even faster. Across Europe and Asia, higher fuel costs will feed into transportation, manufacturing and food prices.
The European Central Bank has already warned that the full inflationary impact of the energy shock has yet to be felt. Financial markets are beginning to price in the possibility that interest rates could remain elevated for longer than previously expected. That makes this far more than an oil story. It is increasingly becoming a global growth story.
Can the market calm down?
Much depends on military and diplomatic developments rather than traditional oil fundamentals. If shipping through Hormuz begins to normalise and Houthi attacks remain limited, prices could retreat relatively quickly. The market still has spare production capacity available from major producers. Demand growth, particularly in China, has also shown signs of moderation.
But if the Houthis continue targeting Saudi shipping and if the US-Iran confrontation intensifies, the market's fear premium could expand rapidly. Investors are essentially pricing geopolitical risk, and geopolitical risk is notoriously difficult to value.
Brent's climb above $100 is not simply a reaction to another Middle East flare-up. It reflects a deeper concern that the world's energy system is losing redundancy. First Hormuz came under pressure. Now Bab el-Mandeb is emerging as a second battlefield. That is why the latest Houthi attacks matter so much. They threaten the alternative routes that producers built precisely for moments like this.
